Southwest Airlines (LUV) 10-K risk factor changes: FY2021 vs FY2020

The COVID-19 [removed: pandemic] [added: pandemic, including associated variants,] has materially and adversely affected, and [removed: will likely] [added: could] continue to materially and adversely affect, the Company’s results of operations, financial position, and liquidity.

The COVID-19 [removed: pandemic] [added: pandemic, including associated variants,] has materially and adversely affected passenger demand and bookings for both business and leisure travel, thereby materially and adversely affecting operating income and cash flows from operations.

The extent of the [added: continued] impact of the COVID-19 pandemic on the Company’s business and its financial and operational performance will depend on future developments, including (i) the duration, spread, severity, [removed: and] [added: or] any recurrence of the COVID-19 pandemic, including through any new variant strains of the underlying virus; (ii) the [removed: effectiveness] [added: effectiveness, availability,] and [removed: availability] [added: usage] of vaccines; (iii) the duration and scope of [removed: related federal, state, and local government] [added: governmental] orders and [removed: restrictions;] [added: restrictions related to the COVID-19 pandemic;] (iv) the extent of the impact of the COVID-19 pandemic on overall demand for air [removed: travel;] [added: travel] and [added: the Company's related business plans and decisions;] (v) the [added: impact of the COVID-19 pandemic on the Company's ability to retain Employees; and (vi) the impact of the COVID-19 pandemic on the] Company’s access to capital, all of which are highly uncertain and cannot be predicted.

Actual or perceived risk of infection on Company flights could have a material adverse effect on the public's [removed: comfort with air travel, which could harm the Company's reputation and business.]

The Company expects it will continue to incur COVID-19 related costs as it [removed: sanitizes airplanes and implements additional hygiene-related protocol] [added: continues] to [removed: airplanes, and takes] [added: take] other [removed: action] [added: actions] to limit infection among its Employees and passengers.

In addition, the industry may be subject to [removed: enhanced] [added: further] health and hygiene requirements [removed: in attempts] [added: designed] to counteract future outbreaks, which requirements may be costly and take a significant amount of time to implement.

The COVID-19 pandemic [added: has resulted, and] could [removed: result] [added: continue to result,] in delays and other performance issues, ceased operations, or even bankruptcies among these suppliers, third party vendors, and service providers.

[removed: If a supplier,] [added: Further failures of suppliers,] third party [removed: vendor,] [added: vendors,] or service [removed: provider were unable] [added: providers] to timely provide adequate products or support for [removed: its] [added: their] products, or otherwise fulfill [removed: its] [added: their] commitments to the Company, [removed: the Company’s operations] could [removed: be] materially adversely [removed: affected.][added: affect the Company’s operations.]

If the Company’s credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to the Company’s rating levels, the airline industry, or the Company, the Company’s access to capital and the cost of [added: any debt financing would be negatively affected.]

[removed: Unfavorable] [added: Also, as has become particularly evident as a result of the COVID-19 pandemic, unfavorable] economic conditions, when low fares are often used to stimulate traffic, [removed: have also historically hampered] [added: hamper] the ability of airlines to raise fares to counteract any increases in [removed: fuel, labor, and other costs.]

In particular, consumer behavior related to traveling may be negatively impacted by adverse changes in [added: business travel patterns or adverse changes in] the perceived or actual economic climate, including [removed: higher unemployment rates,] declines in income [removed: levels, and] [added: levels and/or] loss of wealth resulting from the impact of the COVID-19 pandemic.

The COVID-19 pandemic continues to [removed: rapidly] evolve.

The Company has entered into agreements with [removed: the U.S.] Treasury with respect to funding [removed: support pursuant to the Payroll Support Program under the CARES Act and the Payroll Support Program Extension;] [added: support;] pursuant to these agreements the Company has agreed to certain restrictions on how it operates its business and uses its cash, which could limit the ability of the Company to take actions that it otherwise might have determined were in the best interests of the Company and its Shareholders.

Pursuant to these agreements, the Company has agreed to certain [added: ongoing] restrictions on, and requirements with respect to, its business and operations, including the following:

- The Company is prohibited from repurchasing its common stock and from paying dividends or making capital contributions with respect to its common stock through [removed: March 31,] [added: September 30,] 2022;

- The Company must place certain restrictions on certain higher-paid employee and executive pay, including limiting pay increases and severance pay or other benefits upon terminations, until [removed: October] [added: April] 1, [removed: 2022;][added: 2023; and]

- The Company must maintain certain internal controls and records relating to the [removed: CARES Act] [added: Payroll Support] funds, and is subject to additional reporting requirements.

Prolonged delays [removed: completing] [added: in] the [removed: FAA’s requirements to return] [added: FAA issuing required certifications or approvals for] the [removed: Boeing 737 MAX aircraft to Customer service,] [added: -7,] or further regulatory actions by the FAA with respect to the MAX aircraft, could materially and adversely affect the Company’s business plans, strategies, and results of operations.

The airline industry is particularly sensitive to changes in economic conditions; in the event of continued [added: or future] unfavorable economic conditions or economic uncertainty, the Company's results of operations could be further negatively affected, which could require the Company to further adjust its business strategies.

Therefore, any [removed: continued] [added: general] reduction in airline passenger traffic could [removed: continue to] adversely affect the Company's results of operations.

Airlines are inherently dependent upon energy to operate, and jet fuel and oil represented approximately [removed: 14.4] [added: 23.5] percent of the Company's operating expenses for [removed: 2020.][added: 2021.]

[removed: As discussed above under "Business - Cost Structure," although the airline industry experienced a relatively stable and moderate fuel environment in 2020, the] [added: The] cost of fuel can be extremely volatile and unpredictable, and even a small change in market fuel prices can significantly affect profitability.

Because the Company uses a variety of different derivative instruments at different price points, the Company is subject to the risk that the fuel derivatives it uses will not provide adequate protection against significant increases in fuel prices and in some cases could in fact result in [added: hedging losses, which could result in the Company effectively paying higher than market prices for fuel, thus creating additional volatility in the Company's earnings.]

Competitor cost reduction measures such as accelerated fleet retirements, capacity cuts, and [removed: headcount] [added: network] reductions, could have a negative impact on the Company's relative cost position.

In response, most major U.S. airlines [removed: began to] [added: now] offer expanded cabin segmentation fare products, such as "basic economy" and "premium economy" products.

Jet fuel and oil constituted approximately [removed: 14.4] [added: 23.5] percent of the Company's operating expenses during [removed: 2020,] [added: 2021,] and the Company's ability to control the cost of fuel is subject to the external factors discussed in the fifth Risk Factor above.

Salaries, wages, and benefits constituted approximately [removed: 52.9] [added: 55.0] percent of the Company's operating expenses during [removed: 2020.][added: 2021.]

[added: As discussed further under "Management’s] Discussion and Analysis of Financial Condition and Results of Operations," the Company's unionized workforce, which makes up approximately [removed: 83] [added: 82] percent of its Employees, has had pay scale increases as a result of contractual rate increases, which has put pressure on the Company's labor costs.

Additionally, as indicated above under "Business - Employees," the majority of Southwest's unionized Employee work groups, including its Pilots; Flight Attendants; Ramp, Operations, Provisioning, and Freight Agents; Customer Service Agents, Customer Representatives, and Source of Support Representatives; Aircraft Appearance Technicians; Dispatchers; [added: Meteorologists; Facilities Maintenance Technicians;] and [removed: Meteorologists,] [added: Flight Instructors] are in unions currently in negotiations for labor agreements or have labor agreements that become amendable in [removed: 2021,] [added: 2022,] which could result in additional pressure on the Company's low-cost structure.

[removed: When this occurs,] [added: at times during the pandemic,] certain fixed airport costs are allocated among a fewer number of total flights, which can result in increased landing fees and other costs for the Company.

Disruptions to capital markets, shortages of skilled personnel, [added: supply chain disruptions,] geopolitical developments, and/or adverse economic conditions could subject certain of the Company's third party vendors and service providers to significant financial pressures, which could lead to delays and other performance issues, ceased operations, or even bankruptcies among these third party vendors and service providers.

As discussed below under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the Company experienced significant unit cost pressure in [removed: 2019 following the MAX groundings and in] 2020 [added: and 2021] following the onset of the COVID-19 pandemic.

However, the Company's operating expenses are largely fixed once flight schedules are published; and the Company experienced [added: capacity] lower than [removed: expected capacity during] 2019 [removed: due to the MAX groundings and, in particular,] during 2020 [added: and 2021] due to the COVID-19 [removed: pandemic.][added: pandemic, which has continued to pressure unit costs.]

[removed: Throughout the duration of] [added: During] the COVID-19 pandemic, the Company has made schedule adjustments [removed: and canceled flights] based on consumer [removed: demand and] [added: demand,] booking [removed: trends.][added: trends, and available crew resources.]

The continued impact of the COVID-19 [removed: pandemic] [added: pandemic, and the availability of crew resources,] is expected to [added: continue to] require the Company to make additional schedule adjustments and [removed: drive additional unit cost pressure.][added: could have a material adverse impact on the Company's results of operations.]

Nevertheless, the Company [removed: has taken multiple] [added: began to take] actions [added: in 2021] to [removed: bolster] [added: add staffing and increase the starting wage rate for certain workgroups, manage] its [removed: liquidity] [added: fleet] and [added: fleet order book, and] better optimize its network in an effort to position itself to opportunistically recover and grow [removed: if and] as the pandemic subsides.

The timely and effective execution of the Company's strategies is dependent upon, among other factors, (i) the Company's ability to [added: balance its network schedule and capacity with the availability and location of its crew resources; (ii) the Company's ability to] effectively balance its investment of incremental operating expenses and capital expenditures related to its strategies against the need to effectively control costs; [removed: (ii)] [added: (iii)] the Company's ability to timely and effectively implement, transition, and maintain related information technology systems and infrastructure; [removed: (iii)] [added: (iv)] as discussed below, the Company’s ability to maintain satisfactory relations with its Employees or its Employees’ [removed: representatives; and (iv) the Company's dependence on third parties with respect to the execution of its strategic plans.]

[added: Modifications and refinements to the] Company's systems have been and are expected to continue to be expensive to implement and can divert management’s attention from other matters.

The Company has experienced system interruptions and delays that have made its websites and operational systems unavailable or slow to respond, which has prevented the Company from efficiently processing Customer [removed: transactions or providing services.]

During the majority of 2020, and continuing [removed: into] [added: through] 2021, the Company has offered the ability to work remotely to most of the Company's office and clerical Employees, including the vast majority of its Employees at the Company's headquarters campus.

The Company will continue to be adversely affected if businesses continue to restrict travel for their employees.

comfort with air travel, which could harm the Company's reputation and business.

In response to the COVID-19 pandemic, federal, state, and local agencies have issued laws, regulations, and orders relating to health and occupational safety.

Laws, regulations, orders, or other government actions requiring that employees be vaccinated could materially adversely affect the Company's operations.

In September 2021, the President of the United States issued an Executive Order establishing a vaccination requirement for employees of covered federal contractors.

The federal government required that federal contractors have their workforce vaccinated (or request an accommodation) by December 8, 2021.

The deadline was later extended to January 4, 2022.

The Company started an active campaign to notify Employees of the need to submit proof of COVID-19 vaccination, or apply for an accommodation, by January 4, 2022.

On December 3, 2021, the company announced that 93 percent of its Employees were vaccinated, or had requested an accommodation.

Due to legal challenges to the vaccine mandate, the Company announced on December 20, 2021, that it is no longer targeting a January 4, 2022, deadline for compliance.

However, if the vaccine mandate is revived, the Company expects to resume efforts to work with Employees who have not yet either submitted proof of vaccination or requested an accommodation.

The extent to which the Company's Employees choose not to get vaccinated or do not qualify for an accommodation could result in a negative impact to the Company's operations.

Furthermore, the Company’s ability to effectively hire and retain new Employees could be negatively impacted if potential candidates are unable or unwilling to comply with the vaccination requirement.

Federal agencies employing personnel critical to the Company’s operations, such as air traffic control, security, and customs staffing, could be similarly impacted by the Executive

Order requiring the vaccination of federal employees.

A reduction in the number of federal employees available to support the Company's operations could materially adversely affect the Company's operations.

The Company is also dependent on third party vendors and service providers to support its operations.

To the extent third party vendors or service providers are subject to vaccination laws, regulations, orders, or other government actions and they or their employees are unable or unwilling to comply with applicable requirements, the Company’s arrangements with those vendors or providers could be adversely impacted, the Company might not be able to maintain its arrangement with such parties, or at competitive terms, and the Company's operations could be materially adversely affected.

Since the start of the pandemic, the Company entered into definitive documentation with Treasury with respect to Payroll Support pursuant to three separate Payroll Support programs: the "PSP1 Payroll Support Program" in April 2020 under the Coronavirus Aid, Relief, and Economic Security Act; the "PSP2 Payroll Support Program” in January 2021 under the Consolidated Appropriations Act, 2021; and the "PSP3 Payroll Support Program" in April 2021 under the American Rescue Plan Act of 2021.

fuel, labor, and other costs.

As discussed above under "Business - Cost Structure," Fuel and oil expense for 2021 increased significantly compared with 2020, primarily due to higher market jet fuel prices, and in part due to higher capacity in response to consumer demand.

The airline industry faces potential fuel shortages in 2022 due to pipeline shipping space constraints resulting from the shifting of allocations during the COVID-19 pandemic as well as a national shortage of interstate trucking capacity.

The Company is working with aviation industry stakeholders to address these issues.

However,

unless there is additional jet fuel distribution capacity, whether by pipeline and/or by truck, there could be temporary disruptions (e.g., flight cancellations or passenger lids) at one or more of the Company’s airports in 2022, especially during peak travel periods.

Further, during 2021, in response to staffing challenges, the Company increased the minimum pay for certain of its workforce, and provided incentive pay in certain instances.

When this occurs, as it has

representatives; and (v) the Company's dependence on third parties with respect to the execution of its strategic plans.

transactions or providing services.

The Company's contractual delivery schedule for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company.

The FAA will ultimately determine the timing of the -7 certification and entry into service, and the Company therefore offers no assurances that current estimations and timelines are correct.

Employment-related matters (some of which relate to negotiated items) that have impacted the Company's results of operations include hiring/retention rates, attendance, pay rates, outsourcing, work rules, health care costs, and retirement benefits.

The Company’s business is labor intensive; therefore, the Company would continue to be adversely affected if it were to continue to be unable to employ sufficient numbers of qualified Employees to maintain its operations.

The Company’s success depends on its ability to attract and retain skilled personnel.

In connection with the drastic reduction in travel demand due to the pandemic, in 2020 the Company offered voluntary separation and extended time-off programs to Employees.

As a result, as of December 31, 2021, the Company had a significantly smaller workforce than it did prior to the COVID-19 pandemic.

This negatively impacted the Company's ability to staff appropriately when demand for leisure travel returned in 2021.

At the same time, competition for skilled personnel became fierce, which along with COVID-19 decreases in Employees available to support the operations, led to operational challenges that have continued into 2022.

In addition, the Company has been required to provide incentive pay and increase certain starting wage rates to address these challenges.

Staffing-related challenges could continue to intensify and limit the Company's ability to optimally adjust capacity.

In late 2019, an outbreak of COVID-19 was identified in Wuhan, China.

The COVID-19 outbreak has since spread and grown globally, including within the United States and, in March 2020, the President of the United States declared a national emergency.

The Company has bolstered its liquidity through the financings discussed in Notes 7, 8, and 9 to the Consolidated Financial Statements.

In addition, the Company has aggressively evaluated all capital spending, discretionary spending, and non-essential costs to identify opportunities for cost reductions or deferrals and significantly reduced annual 2020 cash outlays and spending, compared with original plans.

The Company's cost reduction actions have included, among others, (i) cutting or deferring non-essential projects; (ii) reducing the Company's published flight schedule; (iii) placing a significant number of aircraft in storage; (iv) implementing voluntary separation and time-off programs for Employees; (v) substantially suspending all hiring; (vi) reducing the Chief Executive Officer's salary by 20 percent; (vii) reducing the other named executive officer salaries and Board of Director cash retainer fees by 20 percent through December 31, 2020; and (viii) where possible, modifying vendor and supplier payment terms.

Continued reductions in the Company's flight schedule could have a significant negative effect on the Company's overall network and operations.

The resulting cancellations of flights has resulted in a significant amount of cash refunds and the issuance of travel credits to Customers.

The total value of refunds, excluding taxes and related fees, issued to Customers during March 2020, second quarter 2020, third quarter 2020, and fourth quarter 2020, was $248 million, $322 million, $162 million, and $202 million, respectively.

The cancellations and cash refunds have negatively affected the Company's revenues and liquidity, and the Company expects such negative effects to continue.

Further, due to the fears and restrictions involved with travel in the near term, sales of tickets for future travel have been adversely affected.

The Company will continue to be materially adversely affected if government authorities extend existing orders or impose new orders or other restrictions intended to mitigate the spread of COVID-19, if businesses continue to restrict travel for their employees, or if fear of travel continues to depress future ticket sales.

Certain Employees of the Company, and employees of its suppliers and service providers, including airport and air traffic personnel, have tested positive for or been suspected of having COVID-19.

These cases have resulted in the closure of facilities, reduction in available staffing, and disruptions to the Company’s overall operations.

Additional instances of actual or perceived risk of infection among the Company’s Employees, or its suppliers’ or service providers’ employees, could further negatively impact the Company’s operations.

The Company could also be materially adversely affected if it were unable to effectively maintain a suitably skilled and sized workforce, address employment-related matters, or maintain satisfactory relations with its Employees or its Employees’ representatives.

See other Risk Factors and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below for further discussion of and risks related to the Company’s relationship with Boeing.

The COVID-19 pandemic has resulted in significant disruption of global financial markets, which has negatively impacted the value of the Company’s common stock and its debt ratings and could negatively affect the Company’s liquidity.

any debt financing would be negatively affected.

The Company continues to evaluate potential sources of additional liquidity in the short-term.

The extent to which the COVID-19 outbreak affects the Company’s earnings and liquidity will depend, in part, on the Company’s ability to successfully access capital.

The COVID-19 pandemic has also significantly increased economic and demand uncertainty.

The current outbreak and continued spread of COVID-19 could cause a global recession, which would have a further adverse impact on the Company’s medium- and long-term financial condition and operations.

Historically, unfavorable U.S. economic conditions have driven changes in travel patterns, including reduced spending for both leisure and business travel.

Any significant increases in unemployment in the United States would likely continue to have a negative impact on passenger bookings, and these effects could exist for an extensive period of time.

Recent developments with respect to COVID-19 vaccines have the potential to affect the scope and duration of the pandemic.

While a number of COVID-19 vaccines have received regulatory approval and are available in limited quantities in the United States and other parts of the world, a degree of uncertainty exists with respect to the distribution, utilization, and long-term efficacy of vaccinations among the general population.

The impact of COVID-19 vaccines on the pandemic, demand for air travel, and the Company’s business remain unknown.

On March 27, 2020, the CARES Act was signed into law.

The CARES Act provides liquidity in the form of grants and loans to air carriers, such as the Company, that incurred, or are expected to incur, covered losses such that the continued operations of the business are jeopardized, as determined by the Treasury.

In April 2020, the Company entered into an agreement with the Treasury with respect to funding support pursuant to the Payroll Support Program.

In January 2021, the Company entered into an additional agreement with the Treasury with respect to the Payroll Support Program Extension.

- The Company is prohibited from implementing involuntary terminations or furloughs of its Employees (except for death, disability, cause, or certain disciplinary reasons) through March 31, 2021;

- The Company may not reduce the salaries, wages, or benefits of its Employees (other than its Executive Officers, or as otherwise permitted under the terms of the Payroll Support Program) through March 31, 2021;

- Until March 1, 2022, the Company must comply with any requirement issued by the DOT that the Company maintain certain scheduled air transportation service as DOT deems necessary to ensure services to any point served by the Company before March 1, 2020; and

Boeing 737-MAX Risks

On November 18, 2020, the FAA rescinded its March 2019 Boeing 737 MAX grounding order, issued an airworthiness directive, and published training requirements enabling the Company to begin modifying certain operating procedures, implementing enhanced pilot training requirements, installing FAA-approved flight control software updates, and completing other required maintenance tasks specific to the MAX aircraft.

See "Business - Boeing 737 MAX Grounding" above.

In addition to training its active Pilots, the Company is continuing work on its 34 MAX aircraft delivered prior to the FAA’s rescission of the grounding order to prepare each aircraft for the return to Customer service, including removing the aircraft from storage, installing the new flight control software updates, and performing required maintenance checks.

The Company will also conduct multiple readiness flights on each of its MAX aircraft before each such aircraft is operated in Customer service.

The MAX groundings have adversely affected the Company's operations and financial results.

In late February 2020, the Company began to see a negative impact from the COVID-19 pandemic, which quickly accelerated during [removed: the] first quarter [added: 2020] and continued throughout [removed: the remainder of the year.][added: 2021.]

| GAAP | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | Percent Change | | |

| Operating income (loss) | | | | | | $ | [removed: (3,816)] [added: 1,721] | | | | | $ | [removed: 2,957] [added: (3,816)] | | | | | n.m. | | |

| Net income (loss) | | | | | | $ | [removed: (3,074)] [added: 977] | | | | | $ | [removed: 2,300] [added: (3,074)] | | | | | n.m. | | |

| Net income (loss) per share, diluted | | | | | | $ | [removed: (5.44)] [added: 1.61] | | | | | $ | [removed: 4.27] [added: (5.44)] | | | | | n.m. | | |

| Net [removed: income (loss)] [added: loss] per share, diluted | | | | | | $ | [removed: (6.22)] [added: (2.15)] | | | | | $ | [removed: 4.27] [added: (6.22)] | | | | | [removed: n.m.] [added: (65.4)] | | |

| [removed: *As] [added: ASMs] compared with [removed: 2019*] [added: 2019] | | | | | | [removed: *Down 65% to 70%*] | | | [added: Down ~9%] | | | | | | [removed: *Down 65% to 75%*] [added: (e)] | | |

| [removed: *Previous estimation*] | | | | | | [removed: *45% to 55%*] | | | [added: 1Q 2022 Estimation] | | | | | | [removed: *(a)*] [added: Previous estimation] | | |

| [removed: *As] [added: ASMs] compared with [removed: 2019*] [added: 2019] | | | | | | [removed: *Down ~43%*] | | | [added: Down ~4%] | | | | | | [removed: *Down ~45%*] [added: (e)] | | |

[removed: (a) No previous] [added: | | | | | | | | | | 2022 Estimation | | | | | | Previous] estimation [removed: provided.][added: | | |]

See Note [removed: 2] [added: 17] to the Consolidated Financial Statements for further [removed: description of these programs.][added: information.]

The [removed: year-over-year projections do] [added: projection does] not reflect the potential impact of Fuel and oil expense, special items, and profitsharing expense [removed: in both years] because the Company cannot reliably predict or estimate these items or expenses or their impact to [removed: its] [added: the Company's] financial statements in future periods, especially considering the significant volatility of the Fuel and oil expense line item.

COVID-19 [removed: Pandemic][added: Pandemic Impacts]

As detailed in Note 2 to the Consolidated Financial Statements, in connection with the major negative impact of COVID-19 on air carriers, the Company has received significant financial assistance from [removed: the U.S. Department of] Treasury [removed: (the "Treasury") pursuant to] [added: in] the [added: form of] Payroll [removed: Support Program established pursuant to the Coronavirus Aid, Relief,] [added: Support,] and [removed: Economic Security Act (the "CARES Act").][added: this assistance has had a significant impact on the Company's reported GAAP financial results in 2021.]

See Note [removed: 2] [added: 8 to the Consolidated Financial Statements] for further information.

During second quarter 2020, the Company introduced Voluntary Separation Program 2020 [added: ("Voluntary Separation Program")] and the Extended Emergency Time Off ("Extended ETO") program which [removed: aligned] [added: helped closer align] staffing to reduced flight schedules and enabled the Company to avoid involuntary furloughs and layoffs [removed: through 2020.][added: associated with the impacts of the pandemic.]

[added: Approximately 16,000] Employees [removed: had until July 15, 2020, to determine whether] [added: elected] to participate in one of these [removed: programs, and approximately 15,000 Employees elected to do so.][added: programs.]

[removed: In accordance with applicable accounting guidance, the] Company [removed: recorded] [added: accrued] a total charge of $1.4 billion in 2020 related to the special termination benefits for Employees who had accepted the Company's offer to participate in its Voluntary Separation Program [removed: 2020] and the special benefits for Employees who participated in its Extended ETO [removed: program; the accrual is being reduced as program benefits are paid.][added: program.]

[removed: The] [added: During 2021, the] Company [removed: is pursuing] [added: pursued] additional revenue opportunities that utilize idle aircraft [removed: and Employees] to provide [removed: Southwest's legendary Customer Service] [added: service] to new, popular destinations.

These additional service points on the Company's [added: route] map are opportunities it can provide Customers now, all while better [removed: positioning the Company for a travel demand rebound.]

[removed: The] [added: During 2021, the] Company [removed: launched] [added: began] service to [removed: six] new destinations [removed: in 2020:][added: including:]

See [added: below and] Note [removed: 17] [added: 2] to the Consolidated Financial Statements [removed: and “Liquidity and Capital Resources”] for further information.

Passenger revenues for [removed: 2020 decreased] [added: 2021 increased] by [removed: $13.1] [added: $6.4] billion, or [removed: 63.1] [added: 83.5] percent, compared with [removed: 2019.][added: 2020.]

On a unit basis, Passenger revenues [removed: decreased] [added: increased] 43.9 percent, year-over-year.

The [removed: decreases] [added: increase] in Passenger revenues on both a dollar and unit basis were primarily due to the [removed: impact of the COVID-19 pandemic, which resulted in significant reductions] [added: improvements] in [removed: capacity] [added: leisure Passenger demand] and [removed: a sharp] [added: bookings in 2021, compared with the severe] decline in [removed: passenger] demand and bookings [removed: during] [added: resulting from the COVID-19 pandemic for the majority of] 2020.

Other revenues for [removed: 2020 decreased] [added: 2021 increased] by [removed: $258] [added: $315] million, or [removed: 17.4] [added: 25.8] percent, compared with [removed: 2019.][added: 2020.]

The [removed: decrease] [added: increase] was primarily due to [removed: a decrease] [added: an increase] in income from business partners, including Chase Bank USA, N.A. [removed: ("Chase") and the impact on spend on the Company's co-brand card, driven by the decline in consumer spending due to economic uncertainty and widespread restrictions related to the COVID-19 pandemic.][added: ("Chase").]

Operating expenses for [removed: 2020 decreased] [added: 2021 increased] by [removed: $6.6] [added: $1.2] billion, or [removed: 33.9] [added: 9.4] percent, compared with [removed: 2019,] [added: 2020,] while capacity [removed: decreased 34.2] [added: increased 27.6] percent over the same period.

However, the Company's Operating expenses are largely fixed once flight schedules are published, and [removed: the Company has experienced significant] ASM reductions as a result of flight schedule adjustments [removed: related to the COVID-19 pandemic.][added: have a negative impact on Operating expenses per ASM.]

See [removed: "COVID-19 Pandemic" above and] Note [removed: 2] [added: 17] to the Consolidated Financial Statements for further information.

The following table presents the Company's Operating expenses per ASM for [removed: 2020] [added: 2021] and [removed: 2019,] [added: 2020,] followed by explanations of these changes on a [removed: per ASM basis and] dollar [removed: basis:][added: basis.]

| (in cents, except for percentages) | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | change | | | | | | change | | |

| Salaries, wages, and benefits | | | [removed: 6.58] [added: 5.87] | | ¢ | | | | [removed: 5.27] [added: 6.58] | | ¢ | | | | [removed: 1.31] [added: (0.71)] | | ¢ | | | | [removed: 24.9] [added: (10.8)] | | % |

| Payroll support and voluntary Employee programs, net | | | [removed: (0.94)] [added: (2.24)] | | | | | | [removed: —] [added: (0.94)] | | | | | | [removed: (0.94)] [added: (1.30)] | | | | | | [removed: n.m.] [added: 138.3] | | |

| Fuel and oil | | | [removed: 1.78] [added: 2.51] | | | | | | [removed: 2.76] [added: 1.78] | | | | | | [removed: (0.98)] [added: 0.73] | | | | | | [removed: (35.5)] [added: 41.0] | | |

| Maintenance materials and repairs | | | [removed: 0.72] [added: 0.65] | | | | | | [removed: 0.78] [added: 0.72] | | | | | | [removed: (0.06)] [added: (0.07)] | | | | | | [removed: (7.7)] [added: (9.7)] | | |

| Landing fees and airport rentals | | | [removed: 1.21] [added: 1.10] | | | | | | [removed: 0.87] [added: 1.21] | | | | | | [removed: 0.34] [added: (0.11)] | | | | | | [removed: 39.1] [added: (9.1)] | | |

| Depreciation and amortization | | | [removed: 1.21] [added: 0.96] | | | | | | [removed: 0.78] [added: 1.21] | | | | | | [removed: 0.43] [added: (0.25)] | | | | | | [removed: 55.1] [added: (20.7)] | | |

Operating expenses per ASM for [removed: 2020 increased] [added: 2021 decreased] by [removed: 0.4] [added: 14.2] percent, compared with [removed: 2019.][added: 2020.]

Operating expenses per ASM for [removed: 2020,] [added: 2021,] excluding Fuel and oil expense, [removed: special items,] [added: profitsharing,] and [removed: profitsharing] [added: special items] (a non-GAAP financial measure), [removed: increased 28.1 percent year-over-year, primarily due to the significant reduction in capacity associated with the COVID-19 pandemic.][added: decreased 13.3 percent, year-over-year.]

While the pandemic has continued to negatively impact results, the Company saw steady improvement as the year progressed, with intermittent periods of decelerated demand that coincided with COVID-19 surges.

The Company's financial results in both years, on both a GAAP and Non-GAAP basis, were significantly impacted by the pandemic and the resulting effect on demand and passenger bookings.

The Company recorded GAAP and non-GAAP results for 2021 and 2020 as noted in the following tables.

| Operating loss | | | | | | $ | (1,281) | | | | | $ | (5,032) | | | | | (74.5) | | |

| Net loss | | | | | | $ | (1,271) | | | | | $ | (3,512) | | | | | (63.8) | | |

The significant improvement in both GAAP Net income (loss) and Operating income (loss), year-over-year, was primarily due to the rebound in domestic leisure demand and bookings in 2021 as impacts from the COVID-19 pandemic eased.

This resulted in a 74.5 percent increase in Operating revenues in 2021 versus 2020, although 2021 Operating revenues were still well below 2019 levels.

Further, the Company received $2.7 billion in grant allocations of payroll funding support ("Payroll Support") from the United States Department of Treasury ("Treasury") in 2021, compared with $2.3 billion received in 2020, which the Company utilized in both years to offset a portion of salaries, wages, and benefits.

On a quarterly basis, demand for air travel improved each period of 2021.

Although the Company's GAAP financial results benefited from the impact of Payroll Support recognized during the first three quarters of the year, the Company was able to generate a profit during fourth quarter 2021 despite having no further allocation of Payroll Support.

Operating Statistics

The Company provides the operating data below for the three years ended December 31, 2021, because these statistics are commonly used in the airline industry and, therefore, allow readers to compare the Company’s performance against its results for prior periods, as well as against the performance of the Company’s peers.

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| | | | | | | Year ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Operating Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Revenue passengers carried (000s) | | | | | | 99,111 | | | | | | 54,088 | | | | | | 83.2 | | % | | | | 134,056 | | | | | | (59.7) | | % | | | | (26.1) | | % |

| Enplaned passengers (000s) | | | | | | 123,264 | | | | | | 67,785 | | | | | | 81.8 | | % | | | | 162,681 | | | | | | (58.3) | | % | | | | (24.2) | | % |

| Revenue passenger miles (RPMs) (in millions)(a) | | | | | | 103,562 | | | | | | 54,221 | | | | | | 91.0 | | % | | | | 131,345 | | | | | | (58.7) | | % | | | | (21.2) | | % |

| Available seat miles (ASMs) (in millions)(b) | | | | | | 132,006 | | | | | | 103,456 | | | | | | 27.6 | | % | | | | 157,254 | | | | | | (34.2) | | % | | | | (16.1) | | % |

| Load factor(c) | | | | | | 78.5 | | % | | | | 52.4 | | % | | | | 26.1 pts. | | | | | | 83.5 | | % | | | | (31.1) pts. | | | | | | (5.0) pts. | | |

| Average length of passenger haul (miles) | | | | | | 1,045 | | | | | | 1,002 | | | | | | 4.3 | | % | | | | 980 | | | | | | 2.2 | | % | | | | 6.6 | | % |

| Average aircraft stage length (miles) | | | | | | 790 | | | | | | 743 | | | | | | 6.3 | | % | | | | 748 | | | | | | (0.7) | | % | | | | 5.6 | | % |

| Trips flown | | | | | | 1,066,934 | | | | | | 897,540 | | | | | | 18.9 | | % | | | | 1,367,727 | | | | | | (34.4) | | % | | | | (22.0) | | % |

| Seats flown (000s)(d) | | | | | | 165,580 | | | | | | 137,405 | | | | | | 20.5 | | % | | | | 206,390 | | | | | | (33.4) | | % | | | | (19.8) | | % |

| Seats per trip(e) | | | | | | 155.2 | | | | | | 153.1 | | | | | | 1.4 | | % | | | | 150.9 | | | | | | 1.5 | | % | | | | 2.8 | | % |

| Average passenger fare | | | | | | $ | 141.92 | | | | | $ | 141.72 | | | | | 0.1 | | % | | | | $ | 154.98 | | | | | (8.6) | | % | | | | (8.4) | | % |

| Passenger revenue yield per RPM (cents)(f) | | | | | | 13.58 | | | | | | 14.14 | | | | | | (4.0) | | % | | | | 15.82 | | | | | | (10.6) | | % | | | | (14.2) | | % |

| Operating revenues per ASM (cents)(g)(j) | | | | | | 11.96 | | | | | | 8.75 | | | | | | 36.7 | | % | | | | 14.26 | | | | | | (38.6) | | % | | | | (16.1) | | % |

| Passenger revenue per ASM (cents)(h) | | | | | | 10.66 | | | | | | 7.41 | | | | | | 43.9 | | % | | | | 13.21 | | | | | | (43.9) | | % | | | | (19.3) | | % |

| Operating expenses per ASM (cents)(i) | | | | | | 10.66 | | | | | | 12.43 | | | | | | (14.2) | | % | | | | 12.38 | | | | | | 0.4 | | % | | | | (13.9) | | % |

| Operating expenses per ASM, excluding fuel (cents) | | | | | | 8.15 | | | | | | 10.65 | | | | | | (23.5) | | % | | | | 9.62 | | | | | | 10.7 | | % | | | | (15.3) | | % |

| Operating expenses per ASM, excluding fuel and profitsharing (cents) | | | | | | 7.98 | | | | | | 10.65 | | | | | | (25.1) | | % | | | | 9.19 | | | | | | 15.9 | | % | | | | (13.2) | | % |

| Fuel costs per gallon, including fuel tax | | | | | | $ | 1.98 | | | | | $ | 1.45 | | | | | 36.6 | | % | | | | $ | 2.09 | | | | | (30.6) | | % | | | | (5.3) | | % |

| Fuel costs per gallon, including fuel tax, economic | | | | | | $ | 2.01 | | | | | $ | 1.49 | | | | | 34.9 | | % | | | | $ | 2.09 | | | | | (28.7) | | % | | | | (3.8) | | % |

| Fuel consumed, in gallons (millions) | | | | | | 1,668 | | | | | | 1,273 | | | | | | 31.0 | | % | | | | 2,077 | | | | | | (38.7) | | % | | | | (19.7) | | % |

| Active fulltime equivalent Employees (j) | | | | | | 55,093 | | | | | | 56,537 | | | | | | (2.6) | | % | | | | 60,767 | | | | | | (7.0) | | % | | | | (9.3) | | % |

| Aircraft at end of period (k) | | | | | | 728 | | | | | | 718 | | | | | | 1.4 | | % | | | | 747 | | | | | | (3.9) | | % | | | | (2.5) | | % |

(a)A revenue passenger mile is one paying passenger flown one mile.

Also referred to as "traffic," which is a measure of demand for a given period.

As a consequence, the Company experienced its first annual net loss in 48 years.

The Company's prior trend of 47 consecutive years of profitability was a feat unmatched in the U.S. airline industry.

Both GAAP and non-GAAP results, shown in the following tables, were impacted by the pandemic.

See Note Regarding Use of Non-GAAP Financial Measures and the Reconciliation of Reported Amounts to Non-GAAP Financial Measures for additional detail regarding non-GAAP financial measures.

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Operating income (loss) | | | | | | $ | (5,032) | | | | | $ | 2,957 | | | | | n.m. | | |

| Net income (loss) | | | | | | $ | (3,512) | | | | | $ | 2,300 | | | | | n.m. | | |

The COVID-19 pandemic depressed the demand for air travel and negatively impacted both GAAP and non-GAAP results year-over-year.

Operating revenues for the year ended December 31, 2020 decreased 59.7 percent as the Company experienced load factors and yields that were considerably lower than historical levels.

The Company took action to reduce capacity and swiftly cut costs, which generated a reduction in operating expenses of 33.9 percent.

However, due to the fixed nature of a large portion of the Company's cost structure, especially in the short-term, the reduction in operating expenses was not enough to overcome the dramatic decline in revenues.

For periods prior to second quarter 2020, the Company provided its calculation of non-GAAP return on invested capital (“ROIC”) as a measure of financial performance used by management to quantify the Company’s effectiveness in generating returns relative to the capital invested in the business.

By second quarter 2020, the precipitous drop in passenger demand and bookings caused by COVID-19 resulted in a material and adverse effect on the Company’s operating income and cash flows from operations.

As a result, management ceased focus on ROIC and instead has since focused on bolstering the Company’s liquidity through cost reductions, financings, sale-leaseback transactions, and securities offerings.

Accordingly, the Company has chosen not to present ROIC in this Form 10-K and does not expect to present it again until and if the operating environment normalizes sufficiently to return the Company to operating income instead of operating loss.

See Notes 2 and 7 to the Consolidated Financial Statements for further information on the significant impacts to the Company’s operations, financial performance, and liquidity from the COVID-19 pandemic.

2021 Outlook

Thus far in 2021, the Company experienced stalled demand in January and bookings for February 2021, primarily driven by the high level of COVID-19 cases and hospitalizations, as well as a seasonally weaker time period for leisure travel demand following the holidays.

However, trip cancellations have stabilized and January 2021 operating revenues are expected to improve slightly compared with the Company's previous estimations for January

2021 operating revenues provided mid-December 2020, primarily due to stronger leisure passenger demand in the January holiday return travel period and a slight improvement in load factor.

The following table presents selected preliminary estimates of operating revenue, load factor, and capacity for January and February 2021:

| | | | | | | Estimated January 2021 | | | | | | | | | Estimated February 2021 | | |

| Operating revenues year-over-year | | | | | | Down 65% to 70% | | | | | | | | | Down 65% to 75% | | |

| *Previous estimation* | | | | | | *Down 65% to 75%* | | | | | | | | | *(a)* | | |

| Load factor | | | | | | 50% to 55% | | | | | | | | | 50% to 55% | | |

| ASMs year-over-year | | | | | | Down ~41% | | | | | | | | | Down ~46% | | |

| *Previous estimation* | | | | | | *Down 40% to 45%* | | | | | | | | | *Down 40% to 45%* | | |

The Company estimates its March 2021 capacity to decrease approximately 16 percent, year-over-year, or 31 percent, compared with March 2019.

The Company estimates its first quarter 2021 capacity to decrease approximately 35 percent year-over-year, primarily driven by the continued negative effects of the pandemic.

Excluding Fuel and oil expense and special items, first quarter 2021 operating expenses are expected to decrease in the range of 15 to 20 percent, year-over-year, primarily due to lower capacity, year-over-year, as well as an estimated $400 million of cost savings from voluntary separation and extended leave programs.

Accordingly, the Company believes a reconciliation of non-GAAP financial measures to the equivalent GAAP financial measures for projected results is not meaningful or available without unreasonable effort.

In response to the far-reaching impacts of the COVID-19 pandemic, the Company has taken significant measures to enhance and expand upon its already generous and flexible ticketing policies, and to support the well-being of both its Employees and passengers on a daily basis.

These have included, but are not limited to the following:

- Travel funds created because of a flight cancellation between March 1, 2020 and September 7, 2020, will now expire September 7, 2022.

- Travel funds that would otherwise have expired between March 1, 2020 and September 7, 2020, will now expire September 7, 2022.

- Rapid Rewards® loyalty program members who have travel funds that were set to expire, or funds that were created between March 1, 2020 and September 7, 2020, had the option to convert those travel funds into Rapid Rewards points at the same rate as they were able to purchase a ticket with points, through December 15, 2020.

- All Rapid Rewards loyalty program members with an account opened by December 31, 2020 received a "boost" of 15,000 tier qualifying points and 10 flight credits toward A-List and A-List Preferred status, and 25,000 Companion Pass qualifying points and 25 flight credits toward Companion Pass status.

- All current A-List and A-List Preferred tier status members on April 1, 2020 earned status has been extended through December 31, 2021.

- Companion pass members earned status on April 1, 2020 has been extended through December 31, 2021.

As of December 31, [removed: 2020,] [added: 2021,] the Company operated a total of [removed: 137] [added: 129] aircraft under operating and finance leases.

The Company also has [removed: 47] [added: 14] aircraft under operating [removed: and finance lease] [added: leases] that have been subleased to another carrier.

The Company expects to consume approximately [removed: 284 million] [added: 1.9 billion] gallons of jet fuel in [removed: first quarter 2021.][added: 2022.]

Based on this anticipated usage, a change in jet fuel prices of just one cent per gallon would impact the Company’s Fuel and oil expense by approximately [removed: $3] [added: $19] million for [removed: the three months ended March 31, 2021,] [added: 2022,] excluding any impact associated with fuel derivative instruments held.

As of December 31, [removed: 2020,] [added: 2021,] the Company held a net position of fuel derivative instruments that represented a hedge for a portion of its anticipated jet fuel purchases for future periods.

The gross fair value of outstanding financial derivative instruments related to the Company’s jet fuel market price risk at December 31, [removed: 2020,] [added: 2021,] was an asset of [removed: $134] [added: $696] million.

In addition, [removed: $34] [added: $175] million in cash collateral deposits were held by the Company in connection with these instruments based on their fair value as of December 31, [removed: 2020.][added: 2021.]

An immediate 10 percent increase or decrease in underlying fuel-related commodity prices from the December 31, [removed: 2020,] [added: 2021,] prices would correspondingly change the fair value of the commodity derivative instruments in place by approximately [removed: $84] [added: $185] million.

This sensitivity analysis uses industry standard valuation models and holds all inputs constant at December 31, [removed: 2020,] [added: 2021,] levels, except underlying futures prices.

As of December 31, [removed: 2020,] [added: 2021,] the Company had nine counterparties [removed: in] [added: for] which the derivatives held were an asset.

At December 31, [removed: 2020,] [added: 2021,] the Company had

Refer to the counterparty credit risk and collateral table provided in Note 11 to the Consolidated Financial Statements for the fair values of fuel derivatives, amounts held as collateral, and applicable collateral posting threshold amounts as of December 31, [removed: 2020,] [added: 2021,] at which such postings are triggered.

The Company has found that financial derivative instruments in commodities, such as [removed: West Texas Intermediate] [added: WTI] crude oil, Brent crude oil, and refined products, such as heating oil and unleaded gasoline, can be useful in decreasing its exposure to jet fuel price volatility.

As of December 31, [removed: 2020,] [added: 2021,] no cash collateral deposits were provided by or held by the Company based on its outstanding interest rate swap agreements.

While the Company uses financial leverage, it strives to maintain a strong balance sheet and has a "BBB+" rating with Fitch, a "BBB" rating with Standard & Poor’s, and a "Baa1" credit rating with Moody’s as of December 31, [removed: 2020,] [added: 2021,] all of which are considered "investment grade." See Note 7 to the Consolidated Financial Statements for more information on the material terms of the Company’s short-term and long-term debt.

The following table presents the Company's fixed-rate senior unsecured notes outstanding as of December 31, [removed: 2020:][added: 2021:]

| (in millions) | | | | | | December 31, [removed: 2020] [added: 2021] | | |

The $100 million 7.375% [removed: senior unsecured notes] [added: debentures] due 2027 had at one point been converted to a floating rate, but the Company subsequently terminated the fixed-to-floating interest rate swap agreements related to it.

[removed: In addition, the] [added: The] Company's total debt [removed: (both floating and fixed rate debt)] divided by total assets was [removed: 29.9] [added: 29.5] percent as of December 31, [removed: 2020.][added: 2021.]

The Company also has some risk associated with changing interest rates due to the short-term nature of its invested cash, which totaled [removed: $11.1] [added: $12.5] billion, and short-term investments, which totaled [removed: $2.3] [added: $3.0] billion at December 31, [removed: 2020.][added: 2021.]

A hypothetical 10 percent change in market interest rates as of December 31, [removed: 2020,] [added: 2021,] would have resulted in an approximate [removed: $59] [added: $37] million change [removed: on] [added: in] the fair value of the Company’s fixed-rate debt instruments.

A change in market interest rates could, however, have a corresponding effect on earnings and cash flows associated with the Company’s [removed: floating-rate debt,] invested cash (excluding cash collateral deposits held, if [removed: applicable), floating-rate aircraft leases,] [added: applicable)] and short-term investments because of the floating-rate nature of these items.

Assuming floating market rates in effect as of December 31, [removed: 2020] [added: 2021] were held constant throughout a 12-month period, a hypothetical 10 percent change in those rates would have an immaterial impact on the Company’s net earnings and cash flows.

Utilizing these assumptions and considering the Company’s cash balance (excluding the impact of cash collateral deposits held from or provided to counterparties, if [removed: applicable), short-term investments,] [added: applicable)] and [removed: floating-rate debt] [added: short-term investments] outstanding at December 31, [removed: 2020,] [added: 2021,] an increase in rates would have a net positive effect on the Company’s earnings and cash flows, while a decrease in rates would have a net negative effect on the Company’s earnings and cash flows.

The Company’s Amended A&R Credit Agreement contains a financial covenant to maintain total liquidity, [removed: as defined therein, of $1.5 billion at all times.]

As of December 31, [removed: 2020,] [added: 2021,] the Company was in compliance with this covenant and there were no amounts outstanding under the Amended A&R Credit Agreement.

There was no cash reserved for this purpose as of December 31, [removed: 2020.][added: 2021.]

As of December 31, [removed: 2020,] [added: 2021,] no holdbacks were in place.

As of December 31, [removed: 2020,] [added: 2021,] the Company was in compliance with all credit card processing agreements.

as defined therein, of $1.5 billion at all times.

The Company had no secured fixed rate debt as of December 31, 2020.

The carrying value of the Company’s floating rate debt totaled $449 million, and this debt had a weighted-average maturity of 3.47 years at floating rates averaging 1.65 percent for the year ended December 31, 2020.

The Company's floating rate debt represented 4.3 percent of the Company's total outstanding debt as of December 31, 2020.

At December 31, [removed: 2020,] [added: 2021,] Southwest had a total of [removed: 718] [added: 728] Boeing 737 aircraft in its fleet and [removed: 107] [added: 121] destinations in [removed: 40] [added: 42] states, the District of Columbia, the Commonwealth of Puerto Rico, and ten near-international countries: Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos.

[removed: As a result of the rapid spread of the novel coronavirus, COVID-19, throughout the world, including into the United States, on] [added: In] March [removed: 11,] 2020, the World Health Organization classified the [removed: virus] [added: novel coronavirus, COVID-19,] as a pandemic.

The speed with which the effects of the COVID-19 pandemic [removed: have] changed the U.S. economic landscape, outlook, and in particular the travel industry, [removed: has been] [added: was] swift and [removed: unexpected.][added: unexpected and resulted in a significant negative impact on travel demand, revenues, and bookings throughout 2020.]

The Company continued to experience [removed: significant] negative [added: and unpredictable fluctuating pandemic-related] impacts to passenger demand and bookings [removed: through the remainder of 2020 due to the pandemic.][added: in 2021.]

For further information on risks related to COVID-19, as well as the significant impacts of COVID-19 on the Company's operations, financial performance, and liquidity, see "Risk Factors," "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and Notes 2, 7, [removed: 8,] and 9 to the Consolidated Financial Statements.

Boeing 737 [removed: MAX Grounding][added: MAX]

In March 2019, the Federal Aviation Administration (the "FAA") issued an emergency order for all U.S. airlines to ground [removed: the] [added: all] Boeing 737 MAX [removed: aircraft ("MAX"), including the 34 MAX 8 aircraft in the Company’s fleet at that time (the "MAX groundings").][added: ("MAX") aircraft.]

As discussed above under "Business – Worldwide Pandemic," the travel industry was adversely impacted in 2020 [added: and 2021] by the COVID-19 [removed: pandemic.][added: pandemic, including the recent Delta and Omicron variants.]

Like the Company, other U.S. airlines experienced significant [removed: year-over-year] negative impacts to passenger demand and [removed: bookings, but] [added: revenues; however] the impact of the COVID-19 pandemic on some of these airlines was particularly severe because of the [removed: significant reduction in] [added: percentage of their operations that had historically been dependent on] business [removed: demand resulting from companies tightening or even suspending corporate travel.][added: and international travel, each of which suffered particular harm as a result of the pandemic.]

Like the Company, these other airlines responded [removed: by quickly and significantly reducing scheduled flights and] [added: with adjustments to their flight schedules,] capacity, [removed: reducing] operating costs and capital expenditures, [removed: accelerating] [added: and] fleet [removed: retirements, substantially increasing cash holdings and/or reducing or suspending service in certain markets.][added: plans.]

However, in response to the effects of the COVID-19 pandemic, the Company placed greater reliance in 2020 [added: and 2021] on connecting traffic in an effort to capture Customer demand.

Approximately [removed: 72] [added: 73] percent of the Company's Customers flew nonstop during [added: 2021, compared with 72 percent during] 2020, [added: and] compared with 77 percent during 2019, and, as of December 31, [removed: 2020,] [added: 2021,] Southwest served [removed: 667] [added: 788] nonstop city pairs, compared with [added: 667 as of December 31, 2020, and compared with] 720 as of December 31, 2019.

For [removed: 2020,] [added: 2021,] the Company’s average aircraft trip stage length was [removed: 743] [added: 790] miles, with an average duration of approximately [removed: 2.0] [added: 2.1] hours, as compared with an average aircraft trip stage length of [added: 743 miles and an average duration of approximately 2.0 hours in 2020, and as compared with an average aircraft trip stage length of] 748 miles and an average duration of approximately 2.0 hours in 2019.

For example, Southwest currently offers [removed: 8] [added: ten] weekday roundtrips between Dallas Love Field and Houston [removed: Hobby, five] [added: Hobby (and an additional six to Houston Bush), seven] weekday roundtrips between Denver and Chicago [removed: Midway, four] [added: Midway (and an additional six to Chicago O'Hare), seven] weekday roundtrips between Los Angeles International and Las Vegas, [added: twelve weekday round trips between Burbank] and [removed: eight] [added: Oakland, and nine] weekday roundtrips between Phoenix and Denver.

Southwest complements its high-frequency short-haul routes with long-haul nonstop service including flights between [removed: California and] Hawaii and [added: California, Las Vegas, and Phoenix, and] between markets such as Los Angeles and Nashville, Los Angeles and Baltimore, [added: Oakland] and [added: Houston, Las Vegas and Orlando, and] San Diego and Baltimore.

The Company's network and schedule optimization efforts have been particularly beneficial in addressing the impacts of the COVID-19 [removed: pandemic and the MAX groundings.][added: pandemic.]

[added: For example, these efforts have] enabled the Company to continue to [removed: expand] [added: add cities] in key existing markets, such as California, as well as opportunistically introduce service in other [removed: markets.][added: markets during the pandemic.]

Further, the Company expanded its California to Hawaii network in [removed: 2020] [added: 2021] by adding inaugural service between [removed: San Diego] [added: Los Angeles] and [removed: Honolulu on the Island of Oahu.][added: Hawaii in June 2021.]

The Company also [removed: expects to expand] [added: expanded] its service at John Wayne Airport (Orange County) in 2021, including reinstated international service beginning [added: in] March [removed: 11, 2021, through county authorization to increase capacity to and from the airport.][added: 2021.]

In addition, the Company is currently scheduled to offer over [removed: 600] [added: 700] departures from California on peak flying days in the summer of [removed: 2021.][added: 2022.]

Based on the most recent data available from the U.S. Department of Transportation (the "DOT"), for the year ended September 30, [removed: 2020,] [added: 2021,] Southwest carried more California travelers to, from, and within California than any other airline.

The Company's network and schedule optimization efforts have also enabled it to use otherwise idle [removed: aircraft and Employees to provide service to other core markets, as well as new destinations.][added: aircraft, while overall travel demand has been reduced.]

The additional service has created additional regional and international connectivity that has been structured to [removed: improve recoverability during irregular operations,] grow the Company's presence in strategic markets that serve as cornerstones for its [removed: network,] [added: network] and provide additional options for Customers to reach their final destinations.

The COVID-19 pandemic [removed: has] had a particularly negative impact on [added: the Company's] international operations and led to the Company's suspension of international operations [removed: in first quarter 2020.][added: at the beginning of the pandemic.]

The Company's low-cost strategy includes, among other elements, (i) the use of a single aircraft type, the Boeing 737, (ii) the Company's [removed: operationally efficient] point-to-point route structure, and (iii) its highly productive Employees.

Southwest's use of a single aircraft type [removed: allows] [added: has historically allowed] for simplified scheduling, maintenance, flight operations, safety management, and training activities.

[added: Southwest's point-to-point route structure includes service to] and from many secondary or downtown airports such as Dallas Love Field, Houston Hobby, Chicago Midway, Baltimore-Washington International, Burbank, Manchester, Oakland, San Jose, Providence, and Ft.

[removed: Although] Fuel and oil expense for [removed: 2020 decreased] [added: 2021 increased significantly] compared with [removed: 2019,] [added: 2020,] primarily due to [removed: capacity cuts in response to the effects of the COVID-19 pandemic, and in part due to lower] [added: higher] market jet fuel prices, [removed: Fuel] and [removed: oil expense nonetheless remained the Company's second largest operating cost for 2020.][added: in part due to higher capacity in response to consumer demand.]

The table below shows the Company's average cost of jet fuel for each year beginning in [removed: 2009] [added: 2011] and during each quarter of [removed: 2020.][added: 2021.]

[removed: For example, the Company previously retired all Boeing 737-300 aircraft from its fleet and introduced service with the MAX 8 aircraft, which is more fuel-efficient and releases fewer CO2 emissions per available seat mile than the Company's other aircraft; however, the] [added: The] MAX groundings [added: in early 2019] resulted in the removal of these more fuel-efficient aircraft from the Company's schedule, which, in turn, drove a decline in the Company's overall fuel efficiency in 2019.

The Company continues to undertake a number of other fuel conservation initiatives, which are discussed in detail under [removed: "Regulation - Environmental Regulation."][added: "Environmental Sustainability."]

| | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | | | | | [removed: 2017] [added: 2018] | | | | | | [removed: 2016] [added: 2017] | | |

| Available seat miles per fuel gallon consumed | | | | | | [removed: 81.3] [added: 79.2] | | | | | | [removed: 75.7] [added: 81.3] | | | | | | [removed: 76.3] [added: 75.7] | | | | | | [removed: 75.2] [added: 76.3] | | | | | | [removed: 74.4] [added: 75.2] | | |

Salaries, wages, and benefits expense constituted approximately [removed: 52.9] [added: 55.0] percent of the Company's operating expenses during [removed: 2020] [added: 2021] and was the Company's largest operating cost.

[removed: The Company's labor costs, and risks associated therewith, are discussed] in more detail below under "Risk Factors," "Business - Employees," and "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

They are nonrefundable, but, subject to Southwest's No Show Policy, [added: flight credit for the fare paid for unused] travel [removed: funds] [added: by the Customer ("flight credit")] may be applied towards future travel on Southwest.

- "Anytime" fares are, subject to Southwest's No Show Policy, refundable if canceled, or [removed: travel funds] [added: flight credit] may be applied towards future travel on Southwest.

If this fare is purchased with nonrefundable [removed: travel funds,] [added: flight credit,] then the [removed: travel funds] [added: resulting flight credit] will be nonrefundable if travel is canceled.

- "Business Select" fares are, subject to Southwest's No Show Policy, refundable if canceled, or [removed: travel funds] [added: flight credit] may be applied towards future travel on Southwest.

If this fare is purchased with nonrefundable [removed: travel funds,] [added: flight credit,] then the [removed: funds] [added: resulting flight credit] will be nonrefundable if travel is canceled.

During 2021, the Company began service to 14 new destinations including Chicago (O'Hare), Illinois; Houston (Bush), Texas; Jackson, Mississippi; Colorado Springs, Colorado; Savannah, Georgia/Hilton Head, South Carolina; Sarasota, Florida; Santa Barbara, California; Fresno, California; Destin, Florida; Bozeman, Montana; Myrtle Beach, South Carolina; Eugene, Oregon; Bellingham, Washington; and Syracuse, New York.

The Company responded by cancelling a significant portion of its scheduled flights, grounding a significant portion of its fleet, significantly reducing planned capital spending, and significantly reducing its previously scheduled capacity.

Further, the Company substantially enhanced its cash holdings by obtaining significant financing in the capital markets, through payroll funding support ("Payroll Support") with the U.S. Department of Treasury ("Treasury"), and elsewhere.

In addition, the Company offered voluntary separation and extended time-off programs for its Employees, which significantly reduced the Company's active headcount.

Modest improvements in leisure bookings began in mid-February 2021 and further improved in March 2021.

Travel demand and bookings accelerated during second quarter 2021 as a result of declining reported COVID-19 cases throughout the United States, the easing of travel restrictions, and an increase in the number of individuals vaccinated.

Despite some softness in bookings and elevated trip cancellations due to surging COVID-19 cases in August and September as a result of the Delta variant, and in December as a result of the Omicron variant, third quarter and fourth quarter 2021 domestic leisure demand was also strong and a dramatic improvement from 2020.

The unpredictable fluctuating extent of the travel demand improvement over the course of 2021, combined with the reduction in the Company's available workforce, contributed to operational challenges and resulting declines in the Company's operational performance as the Company struggled to return to the staffing levels necessary for operational demands.

In response, the Company continued its efforts to correspondingly adjust capacity throughout 2021 and into first quarter 2022.

In addition, the Company aggressively hired new Employees in third and fourth quarter 2021, and is continuing these efforts in 2022, to balance its schedule with its crew and ground operations resources.

Demand for business travel declined significantly due to companies tightening or even suspending corporate travel.

Demand for international travel was significantly harmed by the imposition of international travel restrictions.

Like the Company, other U.S. airlines began to mitigate cash losses and recover from the COVID-19 pandemic in 2021, while facing challenges such as the Delta and Omicron variants, lower passenger revenue yields (i.e., pricing), higher fuel prices and other cost inflation, and surges in leisure travel demand against constrained personnel resources resulting in operational challenges.

Overall, the U.S. airline industry saw a strong recovery of domestic leisure travel demand during peak travel periods in 2021 as a result of declining reported COVID-19 cases throughout the United States, the easing of travel restrictions, and an increase in the number of individuals vaccinated against COVID-19.

However, business travel remained at a significantly reduced level throughout 2021, as compared with pre-pandemic levels.

Historically, airline industry results have been particularly susceptible to fuel price volatility.

In 2021, the industry experienced a very challenging fuel environment, as compared with recent years, with year-over-year fuel prices significantly higher throughout most of 2021.

As part of the Company's recovery from the impacts of the COVID-19 pandemic, the Company remains focused on restoring its network to pre-pandemic levels through adding back depth and frequency to the Company's network while balancing its network schedule with its crew resources.

In 2021, the Company added many new destinations to its route map, including new California service to Santa Barbara and Fresno.

The Company also added inaugural service to Hawaii from Las Vegas and Phoenix in June 2021.

This, in turn, has enabled the Company to better optimize its service amongst its core markets and, in 2021, it enabled the Company to provide service to 14 new destinations.

The Company has since resumed service to 13 of its 14 international destinations.

The Company’s operations to the Cayman Islands are temporarily suspended due to impacts from the COVID-19 pandemic, but with the easing of government restrictions and the continued increase in demand for beach and leisure destinations, the Company intends to resume service to the Cayman Islands in 2022.

The Company immediately complied with the order and grounded all 34 Boeing 737 MAX 8 ("-8") aircraft in its fleet.

In November 2020, the FAA rescinded the emergency order and issued official requirements to enable U.S. airlines to return the MAX to service.

The Company returned the MAX to service in March 2021, after the Company met all FAA requirements and Pilots received updated, MAX-

related training.

Following the FAA rescission of the emergency order, the Company took delivery of 35 -8 aircraft through the end of 2021 and had 69 -8 aircraft in its fleet at 2021 year-end.

During 2021, the Company entered into supplemental agreements with The Boeing Company ("Boeing") to increase its 2022 firm orders of Boeing 737 MAX 7 ("-7") aircraft, accelerate options into 2022, 2023, 2024, and 2025, and add new options in 2026 and 2027, in each case with the goal of improving potential growth opportunities, restoring the Company's network closer to pre-pandemic levels, lowering operating costs, reducing carbon emissions per available seat mile, and further modernizing the Company's fleet with more fuel efficient aircraft.

Additionally, during 2021, the Company exercised 42 2022 options for -7 aircraft and exercised 22 2023 options for -7 aircraft.

Fleet and capacity plans will continue to evolve as the Company manages through the pandemic recovery period, and the Company will continue to evaluate its remaining MAX options.

However, with its cost-effective order book, the Company retains significant flexibility to manage its fleet size, including opportunities to accelerate fleet modernization efforts if growth opportunities do not materialize.

The Company continues to plan for 30-35 Boeing 737-700 retirements annually.

Additional information regarding the Company's current fleet and fleet delivery schedule is included in "Item 2 – Properties" below.

The delivery schedule for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company.

The FAA will ultimately determine the timing of the -7 certification and entry into service, and the Company therefore offers no assurances that current estimations and timelines are correct.

For example, in 2021 the Company returned its -8 aircraft to service, which are more fuel-efficient and release fewer CO2 emissions per available seat mile than the Company's other aircraft.

Fuel and oil expense can be extremely volatile and unpredictable, and even a small change in market fuel prices can significantly affect profitability.

Fuel and oil expense remained the Company's second largest operating cost for 2021.

| 2021 | | | | | | $ | 3,310 | | | | | $ | 1.98 | | | | | 23.5 | | % |

During 2020, the Company began service to six new destinations including Hilo on Hawaii; Cozumel, Mexico; Steamboat Springs, Colorado; Miami, Florida; Palm Springs, California; and Montrose (Telluride and Crested Butte), Colorado.

In addition, the Company has published its initial flight schedules to begin serving Chicago O'Hare International Airport and Sarasota Bradenton International Airport, beginning February 14, 2021, Colorado Springs Municipal Airport and Savannah/Hilton Head International Airport, beginning March 11, 2021, Houston George Bush Intercontinental Airport and Santa Barbara Airport, beginning April 12, 2021, Fresno Yosemite International Airport, beginning April 25, 2021, and Jackson-Medgar Wiley Evers International Airport in Mississippi, beginning June 6, 2021.

The Company began to see a negative impact on bookings for future travel in late February 2020, which quickly accelerated during the remainder of first quarter and into second quarter, when trip cancellations outpaced new passenger bookings during the majority of March and April 2020.

The Company began proactively canceling a significant portion of its scheduled flights in March 2020, and continued adjusting capacity throughout the remainder of the year, as the Company grounded a significant portion of its fleet and operated a significantly reduced portion of its previously scheduled capacity.

Based on these events and the uncertainty they created, the Company immediately began to focus on its liquidity, including quickly and substantially enhancing its cash holdings.

In April 2020, the Company entered into definitive documentation with the United States Department of Treasury (the "Treasury") with respect to funding support pursuant to the Payroll Support Program under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act").

Payroll support funds under the CARES Act were required to be used solely to pay qualifying Employee salaries, wages, and benefits through at least September 30, 2020.

On January 15, 2021, as a result of continued financial hardships to the Company caused by the COVID-19 pandemic, the Company entered into definitive documentation with the Treasury for further payroll support under the Consolidated Appropriations Act, 2021 (the "Payroll Support Program Extension").

Payroll support funds under the Payroll Support Program Extension must be used to pay qualifying Employee salaries, wages, and benefits through at least March 31, 2021.

In addition to obtaining financing under the CARES Act and the Payroll Support Program Extension, the Company obtained significant financing in the capital markets and elsewhere.

The Company believes it has made significant progress on bolstering its liquidity through efforts including aggressively evaluating all capital spending, discretionary spending, and non-essential costs for near-term cost reductions or deferrals; reducing the Company's published flight schedule; placing a significant number of aircraft in storage; implementing voluntary separation and time-off programs for Employees; substantially suspending all hiring; reducing the Chief Executive Officer's salary

by 20 percent; reducing the other named executive officer salaries and Board of Director cash retainer fees by 20 percent through December 31, 2020; and where possible, modifying vendor and supplier payment terms.

The Company also took significant measures in 2020 in response to the COVID-19 pandemic to support the well-being of both its Customers and Employees including, for example:

- implementing enhanced aircraft cleaning procedures;

- requiring mask or face coverings for Employees and Customers (age two or over);

- implementing measures to support physical distancing, including messaging to Customers and Employees, and modified boarding procedures;

- limiting the number of seats available for sale on each flight through November 30, 2020, to allow for the middle seat to remain open;

- adding Plexiglas® at ticketing and gate counters and baggage services offices;

- implementing Customer and Employee health declarations;

- offering the ability to work remotely to most of the Company's office and clerical Employees, including the vast majority of its Employees at the Company's headquarters campus; and

- working with physician-scientists with knowledge and expertise in infectious disease, disease prevention, and testing protocols, and in particular the latest medical research about COVID-19, to review the Company's multi-layered approach to supporting the well-being of Customers and Employees during the COVID-19 pandemic.

As discussed below under "Company Operations" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations," the MAX 8 aircraft are the Company's most fuel-efficient aircraft and the MAX groundings have adversely affected the Company's operations and financial results.

On November 18, 2020, the FAA rescinded its March 2019 grounding order, issued an airworthiness directive, and published training requirements, enabling the Company to begin modifying certain operating procedures, implementing enhanced pilot training requirements, installing FAA-approved flight control software updates, and completing other required maintenance tasks specific to the MAX aircraft.

Before the Company returns the MAX aircraft to Customer service, every active Southwest Pilot is expected to:

- complete additional FAA-required flight training in one of the Company's nine 737 MAX simulators;

- complete additional FAA-required computer-based training covering MAX procedures; and

- re-take the Company's original 737 MAX 8 computer-based differences training as a refresher to complement the FAA-required training.

Additionally, the Company is continuing work on its 34 MAX aircraft delivered prior to the FAA’s rescission of its grounding order to prepare each aircraft for the return to Customer service, including removing the aircraft from storage, installing the new flight control software updates, and performing required maintenance checks.

The Company will also conduct multiple readiness flights on each of its MAX aircraft before each such aircraft is operated in Customer service.

The Company has scheduled the MAX return to revenue service on March 11, 2021.

In addition to the impact of the COVID-19 pandemic, air carriers with the MAX aircraft in their fleets were prohibited from operating the MAX aircraft until completing the FAA's airworthiness directive and training requirements published on November 18, 2020.

Historically, airline industry results have been particularly susceptible to fuel price volatility; however, the industry experienced a relatively stable and moderate fuel environment in 2020, as compared with recent years, with year-over-year fuel prices lower throughout most of 2020.

For example, these efforts have

In 2020, the Company significantly expanded its presence at Long Beach Airport by acquiring 17 slots previously held by JetBlue Airways (a "slot" is the right of an air carrier, pursuant to regulations of the FAA or local authorities, to operate a takeoff or landing at certain airports).

The Company has also announced new service from Long Beach to Honolulu and from Long Beach to Kahului on the Island of Maui, each beginning March 11, 2021.

These new destinations include four destinations added in fourth quarter 2020: Steamboat Springs, Colorado; Miami, Florida; Palm Springs, California; and Montrose (Telluride and Crested Butte), Colorado.

The Company has further announced first quarter 2021 new service to Chicago O'Hare International Airport; Sarasota Bradenton International Airport; Colorado Springs Municipal Airport; and Savannah/Hilton Head International Airport; and has announced second quarter 2021 new service to Houston George Bush Intercontinental Airport, Santa Barbara Airport, Fresno Yosemite International Airport, and Jackson-Medgar Wiley Evers International Airport in Mississippi.

The Company was able to resume service to Mexico and the Caribbean via Cancun, San Jose del Cabo/Los Cabos, Montego Bay, and Nassau on July 1, 2020; Puerto Vallarta, Mexico on October 8, 2020; Punta Cana, Dominican Republic and Aruba on November 4, 2020; and Havana, Cuba on December 6, 2020.

In response to local restrictions imposed by the Bahamian government, the Company temporarily suspended operations to Nassau effective July 22, 2020.

The Company is scheduled to resume service to Cozumel, Mexico in first quarter 2021.

The CID [removed: seeks] [added: sought] information and documents about the Company’s capacity from January 2010 to the date of the CID, including public statements and communications with third parties about capacity.

On May 11, 2016, the defendants moved to dismiss the Consolidated Amended Complaint, [removed: and on October 28, 2016,] [added: which] the Court denied [removed: this motion.][added: on October 28, 2016.]

[removed: On December 20,] 2017, the Company reached an agreement to settle these cases with a proposed class of all persons who purchased domestic airline transportation services from July 1, 2011, to the date of the settlement.

After notice was provided to the [added: proposed] settlement [removed: class,] [added: class and] the Court held a fairness [removed: hearing on March 22, 2019, and it] [added: hearing, the Court] issued an order granting final approval of the settlement on May 9, 2019.

On June 10, 2019, [removed: three] [added: certain] objectors filed notices of appeal to the United States Court of Appeals for the District of Columbia [removed: Circuit.][added: Circuit, which the Court dismissed on July 9, 2021, for lack of jurisdiction because the district court's order approving the settlements was not a final appealable order.]

The complaint alleges that Boeing and the Company colluded to conceal defects with the [added: Boeing 737] MAX [added: ("MAX")] aircraft in violation of the Racketeer Influenced and Corrupt Organization Act ("RICO") and also asserts related state law claims based upon the same alleged facts.

The Company [added: further] denies all allegations of wrongdoing, including those in the complaint that were not [removed: dismissed, and intends to vigorously oppose certification of any class.][added: originally dismissed.]

The Company believes the plaintiffs' positions are without merit and intends to vigorously defend [removed: itself.][added: itself in all respects.]

[removed: The amended complaint asserts claims] under Sections 10(b) and 20 of the Securities Exchange Act and alleges that the Company made material misstatements to investors regarding the Company’s safety and maintenance practices and its compliance with federal regulations and requirements.

The Company filed a reply on or about October 21, 2020, such that the motion is now fully [removed: briefed.][added: briefed, although the parties have each supplemented their prior briefing with regard to more recent case holdings in other matters.]

The Company’s management does not expect that the outcome in any of its currently ongoing legal proceedings or the outcome of any proposed adjustments presented to date by the Internal Revenue Service, individually or [added: collectively, will have a material adverse effect on the Company’s financial condition, results of operations, or cash flow.]

On December 20,

On September 3, 2021, the trial court issued an order under Rule 23(a) and 23(b)(3) certifying four classes of persons associated with ticket purchases for flights during the period of August 29, 2017, through March 13, 2019, comprised of (i) those who purchased tickets (without being reimbursed) for flights on Southwest Airlines during the class period, except for those whose flights were solely on routes where, at the time of the ticket purchase(s), a MAX plane was not scheduled for use (or actually used) and had not previously been used, (ii) those who reimbursed a Southwest Airlines ticket purchaser and thus bore the economic burden for a Southwest Airlines ticket for a flight meeting the preceding criteria set forth in (i) above, (iii) those who purchased tickets (without being reimbursed) for flights on American Airlines during the class period, except for those whose flights were solely on routes where, at the time of ticket purchase(s), a MAX plane was not scheduled for use (or actually used) and had not previously been used, and (iv) those who reimbursed an American Airlines ticket purchaser and thus bore the economic burden for an American Airlines ticket for a flight meeting the preceding criteria set forth in (iii) above.

On September 17, 2021, the Company filed a petition for permission immediately to appeal the class certification ruling to the Fifth Circuit Court of Appeals.

Boeing also filed such a petition.

Plaintiffs filed their oppositions to the petitions on September 27, 2021.

On September 30, 2021, the Fifth Circuit Court of Appeals granted the Company (and Boeing) permission to appeal the class certification ruling.

On December 22, 2021, in response to a motion to stay the trial court proceedings filed by the Company and Boeing, the Fifth Circuit stayed all proceedings, including the pursuit of any discovery, in the trial court pending disposition of the class certification appeal by the Fifth Circuit.

The Company intends to strenuously pursue the appeal.

On January 7, 2022, the Company and Boeing each filed briefs in support of the appeal.

The plaintiffs have a deadline of March 9, 2022, to file response briefs.

The amended complaint asserts claims

On August 26, 2021, a complaint alleging breach of contract and seeking certification as a class action was filed against the Company in the United States District Court for the Western District of Texas in Waco.

The complaint alleges that the Company breached its Contract of Carriage and other alleged agreements in connection with its use of the allegedly defective 737 MAX aircraft manufactured by The Boeing Company.

The complaint seeks damages on behalf of putative classes of customers who provided valuable consideration, whether in money or other form (e.g., voucher, miles/points, etc.), in exchange for a ticket for air transportation with the Company, which transportation took place between August 29, 2017, and March 13, 2019.

The complaint generally seeks money damages, declaratory relief, and attorneys’ fees and other costs.

On October 27, 2021, the Company filed a multi-faceted motion challenging the complaint, including seeking a stay or transfer of the case based upon prior pending litigation, dismissal of the Complaint based upon lack of subject matter jurisdiction, improper venue, and failure to state a claim, and seeking to have the complaint’s class contentions stricken.

That motion was fully briefed by both parties as of December 22, 2021, and is now awaiting determination by the court.

The Company denies all allegations of wrongdoing and believes the plaintiffs' positions are without merit and intends to vigorously defend itself in all respects.

Two sets of the objectors dismissed their appeals, and the appeal of the remaining objectors is pending.

Discovery is ongoing, and class certification briefing is currently underway.

collectively, will have a material adverse effect on the Company’s financial condition, results of operations, or cash flow.

For the fiscal year ended December 31, [removed: 2020][added: 2021]

[removed: ][added: ]

| Large accelerated filer | | | x | | | [added: Accelerated filer] | | | ☐ | | |

The aggregate market value of the common stock held by non-affiliates of the registrant was approximately [removed: $20,094,518,012] [added: $31,305,364,914] computed by reference to the closing sale price of the common stock on the New York Stock Exchange on June 30, [removed: 2020,] [added: 2021,] the last trading day of the registrant’s most recently completed second fiscal quarter.

Number of shares of common stock outstanding as of the close of business on February [removed: 4, 2021: 590,677,474] [added: 2, 2022: 592,341,878] shares

Portions of the Definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held May [removed: 19, 2021,] [added: 18, 2022,] are incorporated into Part III of this Annual Report on Form 10-K.

| Item 1. | | | [removed: [Business](#i175b148e4b1b4a5ab892e6ec6400118d_13)] [added: [Business](#i5767dd3ba4144437b747a57172579cf2_13)] | | | [removed: [3](#i175b148e4b1b4a5ab892e6ec6400118d_13)] [added: [3](#i5767dd3ba4144437b747a57172579cf2_13)] | | |

| Item 1A. | | | [Risk [removed: Factors](#i175b148e4b1b4a5ab892e6ec6400118d_19)] [added: Factors](#i5767dd3ba4144437b747a57172579cf2_19)] | | | [removed: [27](#i175b148e4b1b4a5ab892e6ec6400118d_19)] [added: [28](#i5767dd3ba4144437b747a57172579cf2_19)] | | |

| Item 1B. | | | [Unresolved Staff [removed: Comments](#i175b148e4b1b4a5ab892e6ec6400118d_22)] [added: Comments](#i5767dd3ba4144437b747a57172579cf2_22)] | | | [removed: [40](#i175b148e4b1b4a5ab892e6ec6400118d_22)] [added: [42](#i5767dd3ba4144437b747a57172579cf2_22)] | | |

| Item 2. | | | [removed: [Properties](#i175b148e4b1b4a5ab892e6ec6400118d_25)] [added: [Properties](#i5767dd3ba4144437b747a57172579cf2_25)] | | | [removed: [41](#i175b148e4b1b4a5ab892e6ec6400118d_25)] [added: [43](#i5767dd3ba4144437b747a57172579cf2_25)] | | |

| Item 3. | | | [Legal [removed: Proceedings](#i175b148e4b1b4a5ab892e6ec6400118d_28)] [added: Proceedings](#i5767dd3ba4144437b747a57172579cf2_28)] | | | [removed: [43](#i175b148e4b1b4a5ab892e6ec6400118d_28)] [added: [44](#i5767dd3ba4144437b747a57172579cf2_28)] | | |

| Item 4. | | | [Mine Safety [removed: Disclosures](#i175b148e4b1b4a5ab892e6ec6400118d_31)] [added: Disclosures](#i5767dd3ba4144437b747a57172579cf2_31)] | | | [removed: [45](#i175b148e4b1b4a5ab892e6ec6400118d_31)] [added: [46](#i5767dd3ba4144437b747a57172579cf2_31)] | | |

| Item 5. | | | [Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity [removed: Securities](#i175b148e4b1b4a5ab892e6ec6400118d_40)] [added: Securities](#i5767dd3ba4144437b747a57172579cf2_40)] | | | [removed: [48](#i175b148e4b1b4a5ab892e6ec6400118d_40)] [added: [49](#i5767dd3ba4144437b747a57172579cf2_40)] | | |

| Item 7. | | | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#i175b148e4b1b4a5ab892e6ec6400118d_46)] [added: Operations](#i5767dd3ba4144437b747a57172579cf2_46)] | | | [removed: [53](#i175b148e4b1b4a5ab892e6ec6400118d_46)] [added: [52](#i5767dd3ba4144437b747a57172579cf2_46)] | | |

| | | | [Liquidity and Capital [removed: Resources](#i175b148e4b1b4a5ab892e6ec6400118d_70)] [added: Resources](#i5767dd3ba4144437b747a57172579cf2_67)] | | | [removed: [68](#i175b148e4b1b4a5ab892e6ec6400118d_70)] [added: [69](#i5767dd3ba4144437b747a57172579cf2_67)] | | |

| | | | [Critical Accounting Policies and [removed: Estimates](#i175b148e4b1b4a5ab892e6ec6400118d_76)] [added: Estimates](#i5767dd3ba4144437b747a57172579cf2_73)] | | | [removed: [75](#i175b148e4b1b4a5ab892e6ec6400118d_76)] [added: [72](#i5767dd3ba4144437b747a57172579cf2_73)] | | |

| Item 7A. | | | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#i175b148e4b1b4a5ab892e6ec6400118d_79)] [added: Risk](#i5767dd3ba4144437b747a57172579cf2_76)] | | | [removed: [80](#i175b148e4b1b4a5ab892e6ec6400118d_79)] [added: [76](#i5767dd3ba4144437b747a57172579cf2_76)] | | |

| Item 8. | | | [Financial Statements and Supplementary [removed: Data](#i175b148e4b1b4a5ab892e6ec6400118d_82)] [added: Data](#i5767dd3ba4144437b747a57172579cf2_82)] | | | [removed: [84](#i175b148e4b1b4a5ab892e6ec6400118d_82)] [added: [80](#i5767dd3ba4144437b747a57172579cf2_82)] | | |

| | | | [Southwest Airlines Co. Consolidated Balance [removed: Sheet](#i175b148e4b1b4a5ab892e6ec6400118d_85)] [added: Sheet](#i5767dd3ba4144437b747a57172579cf2_85)] | | | [removed: [84](#i175b148e4b1b4a5ab892e6ec6400118d_85)] [added: [80](#i5767dd3ba4144437b747a57172579cf2_85)] | | |

| | | | [Southwest Airlines Co. Consolidated Statement of Income [removed: (Loss)](#i175b148e4b1b4a5ab892e6ec6400118d_91)] [added: (Loss)](#i5767dd3ba4144437b747a57172579cf2_88)] | | | [removed: [85](#i175b148e4b1b4a5ab892e6ec6400118d_91)] [added: [81](#i5767dd3ba4144437b747a57172579cf2_88)] | | |

| | | | [Southwest Airlines Co. Consolidated Statement of Comprehensive Income [removed: (Loss)](#i175b148e4b1b4a5ab892e6ec6400118d_94)] [added: (Loss)](#i5767dd3ba4144437b747a57172579cf2_91)] | | | [removed: [86](#i175b148e4b1b4a5ab892e6ec6400118d_94)] [added: [82](#i5767dd3ba4144437b747a57172579cf2_91)] | | |

| | | | [Southwest Airlines Co. Consolidated Statement of Stockholders’ [removed: Equity](#i175b148e4b1b4a5ab892e6ec6400118d_100)] [added: Equity](#i5767dd3ba4144437b747a57172579cf2_94)] | | | [removed: [87](#i175b148e4b1b4a5ab892e6ec6400118d_100)] [added: [83](#i5767dd3ba4144437b747a57172579cf2_94)] | | |

| | | | [Southwest Airlines Co. Consolidated Statement of Cash [removed: Flows](#i175b148e4b1b4a5ab892e6ec6400118d_106)] [added: Flows](#i5767dd3ba4144437b747a57172579cf2_97)] | | | [removed: [88](#i175b148e4b1b4a5ab892e6ec6400118d_106)] [added: [84](#i5767dd3ba4144437b747a57172579cf2_97)] | | |

| | | | [Notes to Consolidated Financial [removed: Statements](#i175b148e4b1b4a5ab892e6ec6400118d_109)] [added: Statements](#i5767dd3ba4144437b747a57172579cf2_100)] | | | [removed: [89](#i175b148e4b1b4a5ab892e6ec6400118d_109)] [added: [85](#i5767dd3ba4144437b747a57172579cf2_100)] | | |

| Item 9. | | | [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#i175b148e4b1b4a5ab892e6ec6400118d_193)] [added: Disclosure](#i5767dd3ba4144437b747a57172579cf2_181)] | | | [removed: [141](#i175b148e4b1b4a5ab892e6ec6400118d_193)] [added: [134](#i5767dd3ba4144437b747a57172579cf2_181)] | | |

| Item 9A. | | | [Controls and [removed: Procedures](#i175b148e4b1b4a5ab892e6ec6400118d_196)] [added: Procedures](#i5767dd3ba4144437b747a57172579cf2_184)] | | | [removed: [141](#i175b148e4b1b4a5ab892e6ec6400118d_196)] [added: [134](#i5767dd3ba4144437b747a57172579cf2_184)] | | |

| Item 9B. | | | [Other [removed: Information](#i175b148e4b1b4a5ab892e6ec6400118d_199)] [added: Information](#i5767dd3ba4144437b747a57172579cf2_187)] | | | [removed: [142](#i175b148e4b1b4a5ab892e6ec6400118d_199)] [added: [135](#i5767dd3ba4144437b747a57172579cf2_187)] | | |

| Item 10. | | | [Directors, Executive Officers, and Corporate [removed: Governance](#i175b148e4b1b4a5ab892e6ec6400118d_205)] [added: Governance](#i5767dd3ba4144437b747a57172579cf2_193)] | | | [removed: [143](#i175b148e4b1b4a5ab892e6ec6400118d_205)] [added: [136](#i5767dd3ba4144437b747a57172579cf2_193)] | | |

| Item 11. | | | [Executive [removed: Compensation](#i175b148e4b1b4a5ab892e6ec6400118d_208)] [added: Compensation](#i5767dd3ba4144437b747a57172579cf2_196)] | | | [removed: [143](#i175b148e4b1b4a5ab892e6ec6400118d_208)] [added: [136](#i5767dd3ba4144437b747a57172579cf2_196)] | | |

| Item 12. | | | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#i175b148e4b1b4a5ab892e6ec6400118d_211)] [added: Matters](#i5767dd3ba4144437b747a57172579cf2_199)] | | | [removed: [144](#i175b148e4b1b4a5ab892e6ec6400118d_211)] [added: [137](#i5767dd3ba4144437b747a57172579cf2_199)] | | |

| Item 13. | | | [Certain Relationships and Related Transactions, and Director [removed: Independence](#i175b148e4b1b4a5ab892e6ec6400118d_214)] [added: Independence](#i5767dd3ba4144437b747a57172579cf2_202)] | | | [removed: [144](#i175b148e4b1b4a5ab892e6ec6400118d_214)] [added: [137](#i5767dd3ba4144437b747a57172579cf2_202)] | | |

| Item 14. | | | [Principal Accounting Fees and [removed: Services](#i175b148e4b1b4a5ab892e6ec6400118d_217)] [added: Services](#i5767dd3ba4144437b747a57172579cf2_205)] | | | [removed: [144](#i175b148e4b1b4a5ab892e6ec6400118d_217)] [added: [137](#i5767dd3ba4144437b747a57172579cf2_205)] | | |

| Item 15. | | | [Exhibits and Financial Statement [removed: Schedules](#i175b148e4b1b4a5ab892e6ec6400118d_223)] [added: Schedules](#i5767dd3ba4144437b747a57172579cf2_211)] | | | [removed: [146](#i175b148e4b1b4a5ab892e6ec6400118d_223)] [added: [139](#i5767dd3ba4144437b747a57172579cf2_211)] | | |

| Item 16. | | | [Form 10-K [removed: Summary](#i175b148e4b1b4a5ab892e6ec6400118d_226)] [added: Summary](#i5767dd3ba4144437b747a57172579cf2_214)] | | | [removed: [149](#i175b148e4b1b4a5ab892e6ec6400118d_226)] [added: [142](#i5767dd3ba4144437b747a57172579cf2_214)] | | |

| Item 9C. | | | [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#i5767dd3ba4144437b747a57172579cf2_1838) | | | [135](#i5767dd3ba4144437b747a57172579cf2_1838) | | |

| | | | | | | | | |

| [Signatures](#i5767dd3ba4144437b747a57172579cf2_217) | | | | | | [143](#i5767dd3ba4144437b747a57172579cf2_217) | | |

| Item 6. | | | [Selected Financial Data](#i175b148e4b1b4a5ab892e6ec6400118d_43) | | | [51](#i175b148e4b1b4a5ab892e6ec6400118d_43) | | |

| [Signatures](#i175b148e4b1b4a5ab892e6ec6400118d_229) | | | | | | [150](#i175b148e4b1b4a5ab892e6ec6400118d_229) | | |

Southwest operated a total of [removed: 718] [added: 728] Boeing 737 aircraft as of December 31, [removed: 2020,] [added: 2021,] of which [removed: 67] [added: 59] and 70 were under operating and finance leases, respectively.

The following table details information on the [removed: 718] [added: 728] aircraft as of December 31, [removed: 2020:][added: 2021:]

| Type | | | | | | Seats | | | | | | Average Age (Yrs) | | | | | | Number of Aircraft | | | | | | Number Owned (a) | | | | | | Number [removed: Leased] [added: Leased (b)] | | |

| 737-800 | | | | | | 175 | | | | | | [removed: 5] [added: 6] | | | | | | 207 | | | | | | 190 | | | | | | 17 | | |

| 737 MAX 8 | | | | | | 175 | | | | | | 2 | | | | | | [removed: 41] [added: 69] | | | | | | [removed: 21] [added: 40] | | | | | | [removed: 20] [added: 29] | | |

(a)As discussed further in Note 7 to the Consolidated Financial Statements, [removed: 106] [added: 89] of the Company's aircraft were pledged as collateral as of December 31, [removed: 2020,] [added: 2021,] for secured borrowings.

The delivery schedule below reflects [removed: existing] contractual commitments, although the timing of future deliveries is uncertain.

The [added: FAA will ultimately determine the timing of the -7 certification and entry into service, and the] Company [added: therefore] offers no assurances that current estimations and timelines [removed: will not be changed.][added: are correct.]

As of December 31, [removed: 2020,] [added: 2021,] the Company had firm deliveries and options for Boeing 737 MAX 7 and 737 MAX 8 aircraft as follows:

| | | | [removed: MAX 7] [added: \-7] Firm Orders | | | | | | [removed: MAX 8] [added: \-8] Firm Orders | | | | | | [removed: MAX 8] [added: \-7 or -8] Options | | | | | | [removed: Additional MAX 8s] | | | | | | Total | | | | | |

| 2022 | | | [removed: —] [added: 72] | | | | | | [removed: 27] [added: —] | | | | | | [removed: 14] [added: 42] | | | | | | [removed: —] | | | | | | [removed: 41] [added: 114] | | | | | |

| 2023 | | | [removed: 12] [added: 52] | | | | | | [removed: 22] [added: —] | | | | | | [removed: 23] [added: 38] | | | | | | [removed: —] | | | | | | [removed: 57] [added: 90] | | | | | |

| 2024 | | | [removed: 11] [added: 30] | | | | | | [removed: 30] [added: —] | | | | | | [removed: 23] [added: 56] | | | | | | [removed: —] | | | | | | [removed: 64] [added: 86] | | | | | |

| 2025 | | | [removed: —] [added: 30] | | | | | | [removed: 40] [added: —] | | | | | | [removed: 36] [added: 56] | | | | | | [removed: —] | | | | | | [removed: 76] [added: 86] | | | | | |

| 2026 | | | [removed: —] [added: 15] | | | | | | [removed: —] [added: 15] | | | | | | [removed: 19] [added: 40] | | | | | | [removed: —] | | | | | | [removed: 19] [added: 70] | | | | | |

[removed: | | | | The Boeing Company | | | | | | | | | | | | | | | | | | | | |][added: The Company also leases a]

[removed: (b)] [added: (a)] The Company has flexibility to [removed: substitute 737 MAX 7 in lieu of 737 MAX 8] [added: designate] firm [removed: orders,] [added: orders or options as -7s or -8s,] upon written advance notification as stated in the contract.

[removed: The Company also leases a] warehouse and engine repair facility in Atlanta.

[removed: In 2019, the] [added: The] Company [added: has] announced its intent to build a new aircraft maintenance facility, scheduled to be completed in first quarter 2022, at Denver International Airport.

The Company has commitments associated with various airport improvement projects, including [removed: ongoing] construction at Los Angeles International Airport.

The Company owns two additional headquarters buildings, located across the street from the Company's main headquarters building, on land owned by the Company including (a) an energy-efficient, modern building, called TOPS, which houses certain operational and training functions, including the Company's 24-hour operations and (b) the Wings Complex, [removed: completed in 2018,] consisting of a Leadership Education and Aircrew Development (LEAD) Center (housing [removed: 18 of] the Company's [removed: 24] [added: 23] Boeing 737 flight simulators and classroom space for Pilot training), an additional office building, and a parking garage.

[removed: Once the] [added: Construction has been completed on an] expansion of the LEAD [removed: Center is operational,] [added: Center, and] the LEAD Center [removed: will have] [added: has] overall space for a total of 26 Boeing 737 flight simulators.

As of December 31, [removed: 2020,] [added: 2021,] the Company operated seven Customer Support and Services call centers.

| 737-700 | | | | | | 143 | | | | | | 17 | | | | | | 452 | | | | | | 369 | | | | | | 83 | | |

| Totals | | | | | | | | | | | | 13 | | | | | | 728 | | | | | | 599 | | | | | | 129 | | |

(b)During 2021, the Company had 7 leased Boeing 737-700 aircraft, for which the lease expired and the aircraft was subsequently purchased from the lessor, and thus the aircraft is now represented as owned.

The delivery schedule for the -7 is dependent on the FAA issuing required certifications and approvals to Boeing and the Company.

| 2027 | | | 15 | | | | | | 15 | | | | | | 6 | | | | | | | | | | | | 36 | | | | | |

| 2028 | | | 15 | | | | | | 15 | | | | | | — | | | | | | | | | | | | 30 | | | | | |

| 2029 | | | 20 | | | | | | 30 | | | | | | — | | | | | | | | | | | | 50 | | | | | |

| 2030 | | | 15 | | | | | | 45 | | | | | | — | | | | | | | | | | | | 60 | | | | | |

| 2031 | | | — | | | | | | 10 | | | | | | — | | | | | | | | | | | | 10 | | | | | |

| | | | 264 | | | | | | 130 | | | (a) | | | 238 | | | (b) | | | | | | | | | 632 | | | | | |

(b) Subsequent to December 31, 2021, and through February 3, 2022, the Company has exercised 12 -8 options for delivery in 2022 and 12 -7 options for delivery in 2023.

The Company has also announced its intent to build a new aircraft maintenance facility, expected to be completed in 2025, at Baltimore-Washington International Airport.

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| 737-700 | | | | | | 143 | | | | | | 16 | | | | | | 470 | | | | | | 370 | | | | | | 100 | | |

| Totals | | | | | | | | | | | | 12 | | | | | | 718 | | | | | | 581 | | | | | | 137 | | |

All MAX deliveries were suspended as of March 13, 2019, upon the FAA emergency order for all U.S. airlines to ground all MAX aircraft.

The Company reached an agreement with Boeing in December 2020 to begin taking delivery of the delayed MAX aircraft, and received seven new leased 737 MAX 8 aircraft from third parties in December 2020.

Including the seven leased MAX aircraft received in December 2020, the Company expects to receive 35 MAX 8 deliveries, including 16 leased aircraft, through the end of 2021.

The Company and Boeing are in discussions to change the Company's aircraft order book, and the Company expects to make further adjustments to the delivery schedule.

| 2021 | | | 7 | | | | | | 100 | | | | | | — | | | | | | 16 | | | | | | 123 | | | (a) | | |

| | | | 30 | | | | | | 219 | | | (b) | | | 115 | | | | | | 16 | | | (c) | | | 380 | | | | | |

(a) 2021 Contractual Detail

| | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | MAX 7 Firm Orders | | | | | | MAX 8 Firm Orders | | | | | | Additional MAX 8s | | | | | | Total | | |

| 2019 Contractual Deliveries | | | 7 | | | | | | 20 | | | | | | 13 | | | | | | 40 | | |

| 2020 Contractual Deliveries | | | — | | | | | | 35 | | | | | | 3 | | | | | | 38 | | |

| 2021 Contractual Deliveries | | | — | | | | | | 45 | | | | | | — | | | | | | 45 | | |

| 2021 Contractual Total | | | 7 | | | | | | 100 | | | | | | 16 | | | | | | 123 | | |

The 2021 combined contractual total includes 40 contractual aircraft that the Company expected to be delivered in 2019, but were not received due to the MAX groundings, and 38 contractual aircraft expected in 2020.

The Company reached an agreement with Boeing in December 2020 to begin taking delivery of the delayed MAX aircraft, and received seven of these new leased 737 MAX 8 aircraft from third parties in December 2020.

Including the seven leased MAX aircraft received in December 2020, the Company expects to receive 35 MAX 8 deliveries, including 16 leased aircraft, through the end of 2021, instead of the 123 shown above.

The Company continues to be in discussions with Boeing to restructure its delivery schedule for the MAX aircraft.

The schedule reflects one contractual aircraft delivery that shifted from 2019 to 2021.

(c) To be acquired in leases from various third parties.

Construction was recently completed on an expansion of the LEAD Center.

The following information regarding the Company’s executive officers is as of February 3, [removed: 2021.][added: 2022.]

| Gary C. Kelly | | | [added: Executive] Chairman of the Board [removed: & Chief Executive Officer] | | | [removed: 65] [added: 66] | | |

| Michael G. Van de Ven | | | [added: President &] Chief Operating Officer | | | [removed: 59] [added: 60] | | |

| Tammy Romo | | | Executive Vice President & Chief Financial Officer | | | [removed: 58] [added: 59] | | |

| Mark R. Shaw | | | Executive Vice President & Chief Legal & Regulatory Officer | | | [removed: 58] [added: 59] | | |

| Andrew M. Watterson | | | Executive Vice President & Chief Commercial Officer | | | [removed: 54] [added: 55] | | |

Kelly* has served as the Company's [added: Executive] Chairman of the Board since [removed: May 2008] [added: February 2022] and [added: has served] as [removed: its Chief Executive Officer] [added: the Company's Chairman of the Board] since [removed: July 2004.][added: May 2008.]

Mr. Kelly also served as [added: Chief Executive Officer from July 2004 to February 2022,] President from July 2008 to January 2017, Executive Vice President & Chief Financial Officer from June 2001 to July 2004, and Vice President Finance & Chief Financial Officer from 1989 to 2001.

Van de Ven* has served as the Company's [added: President since September 2021 and as its] Chief Operating Officer since May 2008.

[removed: Jordan*] [added: Rutherford*] has served as the [removed: Company's] [added: Company’s] Executive Vice President [removed: Corporate Services] [added: People & Communications] since [removed: July 2017.][added: June 2021.]

Mr. Jordan also served as Executive Vice President & [added: Incoming] Chief [added: Executive Officer from June 2021 to February 2022, Executive Vice President Corporate Services from July 2017 to June 2021, Executive Vice President & Chief] Commercial Officer from September 2011 to July 2017, Executive Vice President Strategy & Planning from May 2008 to September 2011, Executive Vice President Strategy & Technology from September 2006 to May 2008, Senior Vice President Enterprise Spend Management from August 2004 to September 2006, Vice President Technology from 2002 to 2004, Vice President Purchasing from 2001 to 2002, Controller from 1997 to 2001, Director Revenue Accounting from 1994 to 1997, and Manager Sales Accounting from 1990 to 1994.

| Robert E. Jordan | | | Chief Executive Officer | | | 61 | | |

| Linda B. Rutherford | | | Executive Vice President People & Communications | | | 55 | | |

Jordan* has served as the Company's Chief Executive Officer since February 2022 and has been a member of the Company's Board of Directors since February 2022.

*Linda B.

Ms. Rutherford also served as Senior Vice President & Chief Communications Officer from October 2017 to June 2021, Vice President & Chief Communications Officer from January 2016 to October 2017, Vice President Communications & Strategic Outreach from April 2007 to January 2016, Vice President Public Relations & Community Affairs from December 2005 to April 2007, Director Public Relations from May 2001 to December

2005, Senior Manager Public Relations from February 1999 to May 2001, and Manager Public Relations from February 1997 to February 1999.

Ms. Rutherford joined the Company in 1992 as a Public Relations Coordinator.

| Thomas M. Nealon | | | President | | | 60 | | |

| Robert E. Jordan | | | Executive Vice President Corporate Services | | | 60 | | |

| Alan Kasher | | | Executive Vice President Daily Operations | | | 54 | | |

| Gregory D. Wells | | | Retiring Executive Vice President Daily Operations | | | 62 | | |

*Thomas M.

Nealon* has served as the Company's President since January 2017.

Mr. Nealon also served as Executive Vice President Strategy & Innovation from January 2016 to January 2017.

Prior to becoming an executive officer of the Company, Mr. Nealon served on the Company’s Board of Directors from December 2010 until November 2015.

Mr. Nealon has also served as Group Executive Vice President of J.C. Penney Company, Inc., a retail company, from August 2010 until December 2011.

In this role Mr. Nealon was responsible for Strategy, jcp.com, Information Technology, Customer Insights, and Digital Ventures.

Mr. Nealon also served as J.C. Penney’s Executive Vice President & Chief Information Officer from September 2006 until August 2010.

Prior to joining J.C. Penney, Mr. Nealon was a partner with The Feld Group, a provider of information technology consulting services, where he served in a consultant capacity as Senior Vice President & Chief Information Officer for the Company from 2002 to 2006.

Mr. Nealon also served as Chief Information Officer for Frito-Lay, a division of PepsiCo, Inc., from 1996 to 2000, and in various software engineering, systems engineering, and management positions for Frito-Lay from 1983 to 1996.

*Alan Kasher* has served as the Company’s Executive Vice President Daily Operations since February 2021.

Mr. Kasher also served as Senior Vice President Air Operations from January 2020 to February 2021, Vice President

Flight Operations from November 2015 to January 2020, Managing Director Regulatory Programs & Compliance from February 2015 to November 2015, Director of Operations from February 2013 to February 2015, and Assistant Director of Operations from April 2012 to February 2013.

Mr. Kasher joined the Company in September 2000 as a First Officer and was promoted to Captain in April 2007.

*Gregory D.

Wells* has served as the Company's Executive Vice President Daily Operations since January 2017.

Mr. Wells also served as Senior Vice President Operational Performance from October 2013 to January 2017, Senior Vice President Operations from September 2006 to October 2013, Senior Vice President Ground Operations from November 2005 to September 2006, Vice President Ground Operations from September 2004 to November 2005, Vice President Safety, Security, and Flight Dispatch from October 2001 to September 2004, Director Flight Dispatch from February 1999 to October 2001, Senior Director Ground Operations from August 1998 to February 1999, and Director Ground Operations from August 1996 to August 1998.

Prior to August 1996, Mr. Wells had various other operational experience with the Company including as Station Manager in both San Jose and Phoenix.

Mr. Wells has over 38 years of experience with the Company.

Mr. Wells is retiring from his Executive Vice President position effective March 1, 2021.

Pursuant to the [added: "PSP1] Payroll Support [removed: Program] [added: Program"] under the [removed: CARES Act,] [added: Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"),] as supplemented by the [added: "PSP2] Payroll Support [removed: Program Extension,] [added: Program” under] the [added: Consolidated Appropriations Act, 2021, and the "PSP3 Payroll Support Program" under the American Rescue Plan Act of 2021, the] Company is prohibited from paying dividends with respect to its common stock through [removed: March 31,] [added: September 30,] 2022.

Following the expiration of [removed: CARES Act and Payroll Support Program Extension] [added: these] restrictions, the Company’s Board of Directors will have sole discretion regarding the timing, amount, and payment of dividends on the basis of operational results, financial condition, cash requirements, future prospects, and other factors deemed relevant by the Board.

As of February [removed: 4, 2021,] [added: 2, 2022,] there were approximately [removed: 11,858] [added: 11,553] holders of record of the Company’s common stock.

The following graph compares the cumulative total shareholder return on the Company’s common stock over the five-year period ended December 31, [removed: 2020,] [added: 2021,] with the cumulative total return during such period of the Standard and Poor’s 500 Stock Index and the NYSE ARCA Airline Index.

The comparison assumes $100 was invested on December 31, [removed: 2015,] [added: 2016,] in the Company’s common stock and in each of the foregoing indices and assumes reinvestment of dividends.

[removed: ][added: ]

| | | | | | | [removed: 12/31/2015] [added: 12/31/2016] | | | | | | [removed: 12/31/2016] [added: 12/31/2017] | | | | | | [removed: 12/31/2017] [added: 12/31/2018] | | | | | | [removed: 12/31/2018] [added: 12/31/2019] | | | | | | [removed: 12/31/2019] [added: 12/31/2020] | | | | | | [removed: 12/31/2020] [added: 12/31/2021] | | |

| NYSE ARCA Airline | | | | | | $ | 100 | | | | | $ | [removed: 129] [added: 106] | | | | | $ | [removed: 136] [added: 83] | | | | | $ | [removed: 107] [added: 102] | | | | | $ | [removed: 132] [added: 78] | | | | | $ | [removed: 100] [added: 76] | |

Subject to certain conditions, including restrictions on the Company pursuant to the [removed: CARES Act and] [added: PSP3] Payroll Support Program [removed: Extension] through [removed: March 31,] [added: September 30,] 2022, repurchases may be made in accordance with applicable securities laws in open market or private, including accelerated, repurchase transactions from time to time, depending on market conditions.

| Southwest Airlines Co. | | | | | | $ | 100 | | | | | $ | 132 | | | | | $ | 95 | | | | | $ | 112 | | | | | $ | 97 | | | | | $ | 89 | |

| S&P 500 | | | | | | $ | 100 | | | | | $ | 122 | | | | | $ | 116 | | | | | $ | 153 | | | | | $ | 181 | | | | | $ | 233 | |

| Southwest Airlines Co. | | | | | | $ | 100 | | | | | $ | 117 | | | | | $ | 155 | | | | | $ | 111 | | | | | $ | 131 | | | | | $ | 113 | |

| S&P 500 | | | | | | $ | 100 | | | | | $ | 112 | | | | | $ | 136 | | | | | $ | 130 | | | | | $ | 171 | | | | | $ | 203 | |

| | | | December 31, [removed: 2020] [added: 2021] | | | | | | December 31, [removed: 2019] [added: 2020] | | |

| Cash and cash equivalents | | | $ | [removed: 11,063] [added: 12,480] | | | | | $ | [removed: 2,548] [added: 11,063] | |

| Short-term investments | | | [removed: 2,271] [added: 3,024] | | | | | | [removed: 1,524] [added: 2,271] | | |

| Accounts and other receivables | | | [removed: 1,130] [added: 1,357] | | | | | | [removed: 1,086] [added: 1,130] | | |

| Inventories of parts and supplies, at cost | | | [removed: 414] [added: 537] | | | | | | [removed: 529] [added: 414] | | |

| Prepaid expenses and other current assets | | | [removed: 295] [added: 638] | | | | | | [removed: 287] [added: 295] | | |

| Total current assets | | | [removed: 15,173] [added: 18,036] | | | | | | [removed: 5,974] [added: 15,173] | | |

| Flight equipment | | | [removed: 20,877] [added: 21,226] | | | | | | [removed: 21,629] [added: 20,877] | | |

| Ground property and equipment | | | [removed: 6,083] [added: 6,342] | | | | | | [removed: 5,672] [added: 6,083] | | |

| Deposits on flight equipment purchase contracts | | | [removed: 305] [added: —] | | | | | | [removed: 248] [added: 305] | | |

| Assets constructed for others | | | [removed: 309] [added: 6] | | | | | | [removed: 164] [added: 309] | | |

| | | | 27,574 | | | | | | [removed: 27,713] [added: 27,574] | | |

| Less allowance for depreciation and amortization | | | [removed: 11,743] [added: 12,732] | | | | | | [removed: 10,688] [added: 11,743] | | |

| Operating lease right-of-use assets | | | [removed: 1,892] [added: 1,590] | | | | | | [removed: 1,349] [added: 1,892] | | |

| Other assets | | | [removed: 722] [added: 882] | | | | | | [removed: 577] [added: 722] | | |

| Accounts payable | | | $ | [removed: 931] [added: 1,282] | | | | | $ | [removed: 1,574] [added: 931] | |

| Accrued liabilities | | | [removed: 2,259] [added: 1,624] | | | | | | [removed: 1,749] [added: 2,259] | | |

| Current operating lease liabilities | | | [removed: 306] [added: 239] | | | | | | [removed: 353] [added: 306] | | |

| Air traffic liability | | | [removed: 3,790] [added: 5,566] | | | | | | [removed: 4,457] [added: 3,790] | | |

| Current maturities of long-term debt | | | [removed: 220] [added: 453] | | | | | | [removed: 819] [added: 220] | | |

| Total current liabilities | | | [removed: 7,506] [added: 9,164] | | | | | | [removed: 8,952] [added: 7,506] | | |

| Long-term debt less current maturities | | | [removed: 10,111] [added: 10,274] | | | | | | [removed: 1,846] [added: 10,111] | | |

| Air traffic liability - noncurrent | | | [removed: 3,343] [added: 2,159] | | | | | | [removed: 1,053] [added: 3,343] | | |

| Deferred income taxes | | | [removed: 1,634] [added: 1,770] | | | | | | [removed: 2,364] [added: 1,634] | | |

| Construction obligation | | | [removed: 309] [added: —] | | | | | | [removed: 164] [added: 309] | | |

| Noncurrent operating lease liabilities | | | [removed: 1,562] [added: 1,315] | | | | | | [removed: 978] [added: 1,562] | | |

| Other noncurrent liabilities | | | [removed: 1,247] [added: 1,224] | | | | | | [removed: 706] [added: 1,247] | | |

| Common stock, $1.00 par value: 2,000,000,000 shares authorized; 888,111,634 [removed: and 807,611,634] shares issued in [removed: 2020] [added: 2021] and [removed: 2019 respectively] [added: 2020] | | | 888 | | | | | | [removed: 808] [added: 888] | | |

| Capital in excess of par value | | | [removed: 4,191] [added: 4,224] | | | | | | [removed: 1,581] [added: 4,191] | | |

| Retained earnings | | | [removed: 14,777] [added: 15,774] | | | | | | [removed: 17,945] [added: 14,777] | | |

| Accumulated other comprehensive [removed: loss] [added: income (loss)] | | | [removed: (105)] [added: 388] | | | | | | [removed: (61)] [added: (105)] | | |

| Treasury stock, at cost: [removed: 297,637,297] [added: 295,991,525] and [removed: 288,547,318] [added: 297,637,297] shares in [removed: 2020] [added: 2021] and [removed: 2019] [added: 2020,] respectively | | | [removed: (10,875)] [added: (10,860)] | | | | | | [removed: (10,441)] [added: (10,875)] | | |

| Total stockholders' equity | | | [removed: 8,876] [added: 10,414] | | | | | | [removed: 9,832] [added: 8,876] | | |

| | | | | | | | | | | | | | | | [removed: 2020] [added: 2021] | | | | | | [removed: 2019] [added: 2020] | | | | | | [removed: 2018] [added: 2019] | | |

| Passenger | | | | | | | | | | | | | | | $ | [removed: 7,665] [added: 14,066] | | | | | $ | [removed: 20,776] [added: 7,665] | | | | | $ | [removed: 20,455] [added: 20,776] | |

| Freight | | | | | | | | | | | | | | | [removed: 161] [added: 187] | | | | | | [removed: 172] [added: 161] | | | | | | [removed: 175] [added: 172] | | |

| Other | | | | | | | | | | | | | | | [removed: 1,222] [added: 1,537] | | | | | | [removed: 1,480] [added: 1,222] | | | | | | [removed: 1,335] [added: 1,480] | | |

| Total operating revenues | | | | | | | | | | | | | | | [removed: 9,048] [added: 15,790] | | | | | | [removed: 22,428] [added: 9,048] | | | | | | [removed: 21,965] [added: 22,428] | | |

| Salaries, wages, and benefits | | | | | | | | | | | | | | | [removed: 6,811] [added: 7,743] | | | | | | [removed: 8,293] [added: 6,811] | | | | | | [removed: 7,649] [added: 8,293] | | |

| Payroll support and voluntary Employee programs, net | | | | | | | | | | | | | | | [removed: (967)] [added: (2,960)] | | | | | | [removed: —] [added: (967)] | | | | | | — | | |

| | | | 14,842 | | | | | | 15,831 | | |

| | | | $ | 36,320 | | | | | $ | 34,588 | |

| | | | $ | 36,320 | | | | | $ | 34,588 | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Stock warrants | | | | | | — | | | | | | 45 | | | | | | — | | | | | | — | | | | | | — | | | | | | 45 | | |

| Equity feature of partial extinguishment of convertible notes | | | | | | — | | | | | | (92) | | | | | | — | | | | | | — | | | | | | — | | | | | | (92) | | |

| Comprehensive income | | | | | | — | | | | | | — | | | | | | 977 | | | | | | 513 | | | | | | — | | | | | | 1,490 | | |

| Balance at December 31, 2021 | | | | | | $ | 888 | | | | | $ | 4,224 | | | | | $ | 15,774 | | | | | $ | 388 | | | | | $ | (10,860) | | | | | $ | 10,414 | |

| Depreciation and amortization | | | | | | | | | | | | | | | 1,272 | | | | | | 1,255 | | | | | | 1,219 | | |

| Loss on partial extinguishment of convertible notes | | | | | | | | | | | | | | | 28 | | | | | | — | | | | | | — | | |

| Payments for repurchases and conversions of convertible debt | | | | | | | | | | | | | | | (293) | | | | | | — | | | | | | — | | |

| Flight equipment acquired against supplier credit memo | | | | | | | | | | | | | | | $ | 569 | | | | | $ | — | | | | | $ | — | |

| Remeasurement of right-of-use asset and lease liability | | | | | | | | | | | | | | | $ | 343 | | | | | $ | — | | | | | $ | — | |

[1.

Summary of Significant Accounting Policies](#i5767dd3ba4144437b747a57172579cf2_103)

[2.

Worldwide Pandemic](#i5767dd3ba4144437b747a57172579cf2_109)

[3.

New Accounting Pronouncements](#i5767dd3ba4144437b747a57172579cf2_115)

[4.

[5.

Commitments and Contingencies](#i5767dd3ba4144437b747a57172579cf2_124)

[6.

Revenue](#i5767dd3ba4144437b747a57172579cf2_127)

[7.

Financing Activities](#i5767dd3ba4144437b747a57172579cf2_130)

[8.

Leases](#i5767dd3ba4144437b747a57172579cf2_133)

[9.

Common Stock](#i5767dd3ba4144437b747a57172579cf2_139)

[10.

Stock Plans](#i5767dd3ba4144437b747a57172579cf2_142)

[11.

Financial Derivative Instruments](#i5767dd3ba4144437b747a57172579cf2_148)

[12.

Fair Value Measurements](#i5767dd3ba4144437b747a57172579cf2_154)

[13.

Accumulated Other Comprehensive Income (Loss)](#i5767dd3ba4144437b747a57172579cf2_160)

| | | | 15,831 | | | | | | 17,025 | | |

| | | | $ | 34,588 | | | | | $ | 25,895 | |

| Balance at December 31, 2017 (as reported) | | | | | | $ | 808 | | | | | $ | 1,451 | | | | | $ | 13,832 | | | | | $ | 12 | | | | | $ | (6,462) | | | | | $ | 9,641 | |

| Balance after adjustment for the new accounting standard | | | | | | $ | 808 | | | | | $ | 1,451 | | | | | $ | 13,850 | | | | | $ | (6) | | | | | $ | (6,462) | | | | | $ | 9,641 | |

| Cash dividends, $0.605 per share | | | | | | — | | | | | | — | | | | | | (348) | | | | | | — | | | | | | — | | | | | | (348) | | |

| Comprehensive income | | | | | | — | | | | | | — | | | | | | 2,465 | | | | | | 26 | | | | | | — | | | | | | 2,491 | | |

| Repurchase of common stock | | | | | | | | | | | | | | | (451) | | | | | | (2,000) | | | | | | (2,000) | | |

| Other, net | | | | | | | | | | | | | | | 49 | | | | | | (43) | | | | | | 3 | | |

| Assets constructed for others | | | | | | | | | | | | | | | $ | 145 | | | | | $ | 65 | | | | | $ | 171 | |

Effective as of January 1, 2019, the Company adopted Accounting Standards Update ("ASU") No. 2016-02, Leases,

codified in Accounting Standards Codification ("ASC") 842 (the "New Lease Standard").

All amounts and disclosures set forth in this Form 10-K, reflect the adoption of this ASU, while all periods prior to 2019 remain in accordance with prior accounting requirements.

As a result of the events and impacts surrounding the COVID-19 pandemic, including the Company's net loss incurred during the year ended December 31, 2020, and the significant number of aircraft that have been placed in storage, the Company assessed whether any impairment of its amortizable assets existed.

No aircraft impairment charges were deemed necessary for the majority of 2020.

For the purpose of impairment assessment, the Company evaluates its all Boeing fleet as one asset group.

However, during fourth quarter 2020, the Company made the decision to permanently ground, and accelerate the retirement of, 20 of its 737-700 aircraft as of December 31, 2020.

This action resulted in the Company recording $32 million in impairment charges associated with these 20 aircraft.

Generally, expense is recorded on a straight-line basis over the term of the agreement based on the Company's best estimate of expected future aircraft utilization.

When performing a quantitative impairment assessment of goodwill and indefinite-lived intangible assets, fair value is estimated based on (i) recent market transactions, where available, (ii) projected discounted cash flows (an

income approach), or (iii) a combination of limited market transactions and the lease savings method (which reflects potential annual after-tax lease savings arising from owning the certain indefinite-lived intangibles rather than leasing them from another airline at market rates).

The Company applied the quantitative approach during its annual 2020 impairment tests.

Key assumptions and/or estimates made in the Company's 2020 impairment tests included the following: (i) a projection of revenues, expenses, and cash flows; (ii) terminal period revenue growth and cash flows; (iii) an estimated weighted average cost of capital; (iv) an assumed discount rate depending on the asset; (v) a tax rate; and (vi) market purchase prices and lease rates for comparable assets.

The Company believes these assumptions are consistent with those a hypothetical market participant would use given circumstances that were present at the time the estimates were made.

However, actual results and amounts may be significantly different from the Company's estimates.

As a result of the annual impairment tests performed as of October 1, 2020, no impairment was determined to exist for Goodwill or indefinite-lived intangible assets, as the fair values of the reporting unit and indefinite-lived intangible assets exceeded their respective carrying values.

The remainder of

The Company classifies its

On November 18, 2020, the FAA rescinded its order to ground the MAX fleet.

The Company is currently working to meet the FAA's requirements by modifying certain operating procedures, implementing enhanced Pilot training requirements, installing FAA-approved flight control software updates, and completing other required maintenance tasks specific to the MAX aircraft.

The MAX fleet grounding has adversely affected the Company's operating results, and could have a material adverse effect on the Company's operating results in future periods.

travel in late February 2020, which quickly accelerated during the remainder of first quarter and into second quarter, when trip cancellations outpaced new passenger bookings during the majority of March and April 2020.

The Company continued to experience significant negative impacts to passenger demand and bookings through the remainder of 2020 due to the pandemic.

Based on these events and the uncertainty they created, the Company immediately began to focus on its liquidity, including quickly and substantially enhancing its cash holdings.